Capital gains tax taper relief

WallyBird

Hi,
Please can anyone help me?
I have a part share (~1/4) in a family house (since 1980s); with the new captial gains tax rules, taper relief is removed, so although the rate is lower, the actual amount is higher. Apparently the taper relief can be locked in at the old rate by transferring to my spouse.
The question is: Can I just write a letter (witnessed?) saying I transfer my share of this house to my husband? Or does this all need solicitors etc?
Thanks.

silvercar

AFAIK its indexation relief that can be transferred to spouse not taper relief.

Indexation relief would allow for the increase in value of the property from when it was bought until 1998.

Not sure how you do it.

WallyBird

Thanks Silvercar. I'm afraid I do not really know the difference between the two.

It is all complicated, as I do not know when the house was first transferred, and it was not all transferred at once (1/7 given initially, then another smaller part later). My parents just told us they had decided to give part of it to us, but I can't remember when that was.

silvercar

Its really complicated if there are people living in it paying no rent. You then need its value at the time of transfer, but not the open market the value, rather the value with a sitting tenant paying no rent!

WallyBird

Thanks again!
No one is living in it, it is a holiday home that the family share. Originally bought by my parents, then split several ways, but two people have since died, so their share got split between us.

WallyBird

Hi again,
Does anyone know how I should go about transferring my share of this house to my husband?

Could I just write a letter saying I transfer it to him, sign it and date it, with witnesses?

Or

Do I need an accountant or a solicitor to do this? Or both?
Thanks!

silvercar

Indexation allows for the increase in property value to 1998; taper relief gives you discount on CGT based on how long you have owned the property since 1998. The maximum taper relief was fixed at 40% relief.

With the changes announced, from April 2008, taper relief is abolished and the CGT rate is changed from your marginal rate to a flat rate of 18%.

The CGT allowance, currently £9,200 remains.

Transfers between spouses are allowed and the receiving spouse receives the property as if it was bought at the same date and value as the giving spouse. The benefit is that the value is uplifted by indexation relief. So for properties owned for a length of time prior to 1998, there is some gain to be made by making the transfer.

Balance the gain in indexation relief by transferring all the asset with the benefit of transferring half the asset to gain two lots of CGT allowance.

Obviously, anyone considering this shouldn't let the potential tax benefit cloud their judgement. No point saving £1,000 tax if your spouse is going to run off with the family ancesteral home!

I would be inclined to involve a solicitor; for the sake of a few hundred pounds (which you will presumably save in tax) it makes sense to ensure it is done properly.

Pennywise

silvercar wrote: »

The maximum taper relief was fixed at 40% relief.

75% business asset taper relief for holiday homes (i.e. rented out as holiday home rather than lived in as a holiday home)

WallyBird

Thanks Silvercar. It sounds good advice.

I need to get more information - all I know is that my parents decided to do this transfer at some time in the past. I have never had or seen any documentation, so don't know exactly when - but quite a long time ago. (Well, you don't like to look a gift horse in the mouth, do you?!!) The house has just been revalued.

WallyBird

Hi again,

Silvercar, please could you help me again?

Say the gain on my share of the house, over a period of greater than ten years, is in the region of £100K.

Would it be better to give half to my husband (standard rate tax payer) and keep half for myself (just into the standard rate), OR give the whole lot to him to lock in the the savings you mentioned above?

Or, give the whole lot to him now, and then have him give me half back in X years if ever the house gets sold (would this be legal)?

There is no intention of selling the house in the near future, and I trust my husband not to run off with it!

Thanks for your continued help.

WallyBird.

Anon

It is an interesting question whether it would be better to transfer to spouse - is there an easy way to calculate and compare (and no doubt would need to be quick given month is going fast already!)?

There was an article in the Telegraph on this very issue last month ('Invest in your relationship to cut your CGT bill', 9/2/08).

See: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/07/cmcgt07.xml

Anon