Want to transfer 50% of property to spouse ahead of sale CGT

tillycat123

Hi - I have a second property that I own no mortgage that my son lives in rent free, he covers the bills, it’s a long story!

Anyway he is now moving out buying a place of his own next year.

I have owned the house for 10 years and possibly looking at a gains of 80 - 100 thousand. I have not ever lived there.

Can someone kindly tell me the steps I need to take to transfer 50% to my husband so we can share the CGT liabilty when we come to sell next year?

I am getting really confused what I need to be doing, is it beneficial interest I need to have a solicitor draw up?

thank you!

poseidon1

I would question that if CGT is the only thing that concerns you, whether there is any real benefit gifting half to your husband.

You are already aware that the  annual CGT exemption has been reduced to a virtually meaningless £3,000. 

Gifting half the property to your husband would save a maximum of £720 pounds in tax ( at the top rate).  Therefore any amount you spend in fees to execute the gift  reduces the net tax saving.

You need to decide if the time,  effort and costs of a transfer  are worth the paltry tax savings. I personally wouldn't bother.

Might have been a more sensible course of action, if you were keeping it as a rental investment and looking to mitigate long term income tax exposure ( please note that this is not reccomendation you become a long term landlord!).

Jeremy535897

It's not just the annual exemption, but whether your husband has a lower capital gains tax rate on at least part of the gain as you would. If he has no basic rate available for capital gains, it really isn't worth doing, as the benefit is only £3,000 at 24% =  £720 (assuming he has no losses brought forward and has no other chargeable gains).
I assume there is no mortgage, as this adds more problems?
I have always advised clients to employ a solicitor to draw up a declaration of trust to transfer half the beneficial interest in the property, which avoids having to involve the Land Registry. I am assuming you and the property are in England or Wales? There is also now the requirement to register the trust with the Trust Registration Service, which will add further costs.
The best advice on timing is to do it before the contemplation of a sale, but you are past that. It is strongly recommended that you do it well before instructing estate agents and/or solicitors regarding the sale. It is always possible that HMRC will challenge the gift, but if there is real doubt that the sale will take place, I have not known HMRC cause difficulties. Others may be more cautious.

tillycat123

Thank you both,

 if the house gains £100k am I working this out incorrectly?

I earn £40k  so the gain will be pushed into the higher bracket.

My husband operates through his own ltd company so could potentially draw just £12570 and not take a dividend.

No mortgage so hefty CGT if just left in my name or am I missing something?

Isthisforreal99

tillycat123 said:

Thank you both,

 if the house gains £100k am I working this out incorrectly?

I earn £40k  so the gain will be pushed into the higher bracket.

My husband operates through his own ltd company so could potentially draw just £12570 and not take a dividend.

No mortgage so hefty CGT if just left in my name or am I missing something?

Why do you think a mortgage will be relevant? It makes no difference for CGT whether it was mortgaged or not.

Seems it would be beneficial in your scenario to put it into joint names before disposal but seek professional advice and as above not immediately before sale. HMRC can challenge such contrived transactions.

Grumpy_chap

Isthisforreal99 said:

Why do you think a mortgage will be relevant? 

AIUI, the relevance of a mortgage (as the question was asked by other posters in the thread) is that if the mortgage is in the sole name of the OP (the same as the property) then the mortgage lender may be concerned at a third party taking part-ownership of the property.  The OP has confirmed there is no mortgage so that consideration is moot in this case.

poseidon1

tillycat123 said:

Thank you both,

 if the house gains £100k am I working this out incorrectly?

I earn £40k  so the gain will be pushed into the higher bracket.

My husband operates through his own ltd company so could potentially draw just £12570 and not take a dividend.

No mortgage so hefty CGT if just left in my name or am I missing something?

On the numbers you quote, your husband has far more basic rate  CGT band to utilise the 18% CGT rate than you do.

So a 50: 50 split would see him utilising £37,700 of the 18% tax band compared to your much smaller amount of £10,270. Remaining gains ( net of £3,000 exemptions) then taxed at 24%

Therefore with all this basic rate headroom available to your husband, there is a somewhat more appealing potential  CGT saving of 6% of  £37,700 ( £2,262 )  plus the £720 attributable to use of his £3,000 exemption, compared to you disclosing the entire gain on your  own return.

However bear in mind costs of transferring a share to husband.

@Jeremy535897 suggests a solicitor drafted declaration of trust approach so obvious up front costs there.

After you have sold if you are not confident enough to handle the tax compliance computations to report and pay tax ( separately) within the 60 day deadline, then potential tax accountant's fees for you both.

Finally the gain has to be reported ( again) on self assessment tax returns in due course. If you both already self assess and pay someone to do that for you, then all well good. If not, and you are not comfortable doing it yourselves, yet another round of professional fees.

All the above potential costs could make significant inroads or wipe out the benefit of an overall  tax saving of just under £3,000 if you proceed with the split, so it comes down to how much can you do on a DIY basis to make this excercise cost effective.

Would appreciate @Jeremy535897 identifying any flaws in the above analysis.

Jeremy535897

poseidon1 said:

tillycat123 said:

Thank you both,

 if the house gains £100k am I working this out incorrectly?

I earn £40k  so the gain will be pushed into the higher bracket.

My husband operates through his own ltd company so could potentially draw just £12570 and not take a dividend.

No mortgage so hefty CGT if just left in my name or am I missing something?

On the numbers you quote, your husband has far more basic rate  CGT band to utilise the 18% CGT rate than you do.

So a 50: 50 split would see him utilising £37,700 of the 18% tax band compared to your much smaller amount of £10,270. Remaining gains ( net of £3,000 exemptions) then taxed at 24%

Therefore with all this basic rate headroom available to your husband, there is a somewhat more appealing potential  CGT saving of 6% of  £37,700 ( £2,262 )  plus the £720 attributable to use of his £3,000 exemption, compared to you disclosing the entire gain on your  own return.

However bear in mind costs of transferring a share to husband.

@Jeremy535897 suggests a solicitor drafted declaration of trust approach so obvious up front costs there.

After you have sold if you are not confident enough to handle the tax compliance computations to report and pay tax ( separately) within the 60 day deadline, then potential tax accountant's fees for you both.

Finally the gain has to be reported ( again) on self assessment tax returns in due course. If you both already self assess and pay someone to do that for you, then all well good. If not, and you are not comfortable doing it yourselves, yet another round of professional fees.

All the above potential costs could make significant inroads or wipe out the benefit of an overall  tax saving of just under £3,000 if you proceed with the split, so it comes down to how much can you do on a DIY basis to make this excercise cost effective.

Would appreciate @Jeremy535897 identifying any flaws in the above analysis.

I would only add that the compliance regarding the online and self assessment tax returns is going to be there for one taxpayer whatever is done, so the incremental cost is the extra online return and the extra entries on the husband's self assessment tax return (as a director he will already be completing one).
I would try to avoid using an adviser, unless there is already an adviser. The returns should be very straightforward. The gain is calculated as sale proceeds minus selling costs (estate agent and legal fees), less original cost including acquisition costs (legal fees and stamp duty), less any improvements reflected in the value of the property at the date of sale (this is the hardest issue to deal with, as to what qualifies and what doesn't). The gain will be split equally, with half the proceeds and half the costs included on each return.
It is worth spending money on the declaration of trust, and the TRS requirements, as this isn't a DIY job. But bear in mind the putative saving.