Cgt on rentals

plumb1_2

hi all

1- I have 2 rental properties, 1 in joint names with my wife and 1 in my name

2- would I have to put her on the mortgage? to be able to split the cgt or is there a easier way to do this, as she’s over 70 and they might not except her.

Could we just start her declaring as getting 50% of the rental and when the time comes to sell ( maybe 18mths -2 yrs) so we both can claim the allowance

Grumpy_chap

Assuming you are both in a similar age range, and the plan to sell the properties in 18 - 20 years, that will make you both around 90 when you sell the properties. If you keep the properties until you leave for good, there will be no CGT.

plumb1_2

https://forums.moneysavingexpert.com/discussion/comment/82044428#Comment_82044428

hi I have edited my post, we are looking to sell from 18months to 2 years time

MyRealNameToo

https://forums.moneysavingexpert.com/discussion/6673591/cgt-on-rentals

Are you selling both of them or just one?

Do you have an estimate of the gains?

You would need to speak to your lender as to if they will accept you giving away half the property without the new co-owner being on the mortgage, my assumption would be that they will need to go on the mortgage. If part of your mortgage is transferred to her (by virtue of it becoming joint) the that is considered what she is paying for it and therefore can trigger SDLT

sherlock228

in order to do the split between husband and wife there has to be a beneficial interest held by both persons in the property.

For income tax purposes, as you are married, you must have a "Form 17" registered with HMRC and have made a Declaration of Trust stating the split. However, that requires you are indeed a legal owner since you must also prove whether a shared legal ownership in the form of either a Joint Tenancy or a Tenancy in Common exists when submitting the form.
Declare beneficial interests in joint property and income - GOV.UK

For CGT purposes on the other hand you can be a beneficial owner without being the legal owner (ie named on Land Registry record) but you then need to evidence the split entitlement.
CG70230 - Land: legal and beneficial interests in land - HMRC internal manual - GOV.UK

If your scenario concerns only the CGT on sale of the sole name house then she would not need to be joint legal owner. You would merely show that the proceeds from the sale was shared with her.
But you would be very wise to have a declaration of trust already in place formally supporting that intention to split the sale money (and obviously remaining silent re rental income before sale)

However, for a property with a history of rental income in one name, such a move for CGT purposes may (not will) draw the attention of HMRC as whilst it is a valid tax avoidance measure to use a DoT they may well enquire when the time comes. Unlikely HMRC would overturn the split of sales proceeds, but might be a pain the neck whilst they check it out.

poseidon1

Just to add to @sherlock228's post, the Declaration of Trust (DOT) should ideally be drafted by a lawyer rather than DIY.

Since such a deed comes at a cost, you should weigh this against the potential tax savings to be achieved by sharing the gain with your wife.

In my view the tax saving should be materially above merely utilising her £3,000 annual exemption which is only worth £720 at the maximum 24% CGT rate. Unless the bulk of her gain will also fall within the 18% tax band thereby saving you 6% on whatever your exposure might be, the DOT might not be worth the effort or expense, so do the sums.

You might also find the following thread of interest where the OP in that case decided the transfer excercise was not worth the hassle. Note @sherlock228's detailled cost/benefit analysis therein which might assist with your own computations-

https://forums.moneysavingexpert.com/discussion/6672976/adding-wife-to-property-ownership

plumb1_2

https://forums.moneysavingexpert.com/discussion/comment/82044746#Comment_82044746

there’s about £100k profit on it,after paying mortgage off, less say £5-10k for estate agents and solicitor fees. So £90-95k

The other one in joint names we will will keep and most probably leave it to a family member when we meet our maker.

UKSBD

https://forums.moneysavingexpert.com/discussion/comment/82045023#Comment_82045023

I'm the OP of the post mentioned above and in very similar situation to you,

In my case we could gave taken advantage of her allowance saving about £700 and saved 6% of £40k by her not going in to higher tax rate.

Due to my wife being a very anxious person and all the paperwork and potential delays involved, plus the cost of doing it, we decided it just not worth the hassle

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82045023#Comment_82045023

Based on your numbers a Declaration of trust gift to your wife could be beneficial in potentially moving gains taxable on you at 24% to your wife if she has plenty of 18% CGT head room.

Advice to use a lawyer for the DOT still stands.

Presumably you both are subject to self assessment which you handle yourselves, or do you use an accountant to submit your tax returns? In this regard note the potential for the DOT being challenged by HMRC as intimated by sherlock228's post.

plumb1_2

https://forums.moneysavingexpert.com/discussion/comment/82045302#Comment_82045302

https://forums.moneysavingexpert.com/discussion/comment/82045302#Comment_82045302

Thanks I’ll have a look at the cost of getting a DOT done

My wife income approximately £18k inc pensions

My income approximately £25k inc pensions and rental

So well below 40% bracket and I have an accountant to do our returns as I also work self employed 1 day a week

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82045447#Comment_82045447

Back of envelope calculation suggests you will save 6% of £32,270 (ie £1,936 ) using your wife's 18% head room, plus of course a further £720 for her CGT exemption, total £2,656.

Possibly worth the effort, if the lawyer's fees are not too high, and accountancy fees are not measurably increased by reporting two chargeable gains rather than one ( you might want to check the accountant on that point).

However, it is the steady erosion of the cgt exemption down to the current £3000 level that makes your proposed restructuring somewhat touch and go by way of cost/ benefit. The £12,300 exemption which exsisted a few years ago, made these spousal CGT mitigation asset transfers far more worthwhile.