Transfer of property into joint names. Capital gains tax
Written by Ray Coman
A common concern for married couples is about moving property into joint names. Any property which is not the owner’s home is liable to tax and with the increase in property values in recent years, capital gains tax is a growing concern. Transfers between spouses are exempt from capital gains tax. However, there are benefits and risks to the transfer of property in these circumstances. The Finance Act 2020 has also removed some of the capital gains tax dilema that used to hamper decision making in this area.
Use of annual exemption and unused basic rate of spouse
Principal private residence relief
Deemed PPR intact regardless of marriage
Exposure to loss of PPR on divorce
Use of annual exemption and unused basic rate of spouse
The exemption from tax on transferring property into joint name presents an opportunity to save tax.
Each UK taxpayer is entitled to an annual exemption from capital gains tax. By transferring a property into joint names there would be two lots of annual exemption (of £12,300 for 2020/21.) Therefore, the tax free gains for a couple could be £24,600 as compared with the tax free gains for an individual of only £12,300. A gain is taxed at 18% to the extent that total gain and income is less than the basic rate tax threshold (of £37,500 for 2020/21). Gains are taxed at 28% to the extent that the gain increases total income and gains above the basic rate tax threshold.
There is an opportunity to save tax by moving property into joint names, where the transferee is liable to tax at a lower marginal rate.
Principal private residence relief
A taxpayer is not liable to capital gains tax on disposal of their home because of principal private residence relief. Where a property owner has not always lived in their property there are certain periods which are deemed periods of occupation. From 6 April 2020, this includes the final 9 months of occupation.
An acquiring spouse inherits the period of occupation of the disposing spouse for the purpose of calculating principal private residents’ (PPR) relief. This is explained in section 222 (7) of the Taxation of Chargeable Gains Act 1992 (TCGA.)
This is a valuable ruling because it allows the tax benefits of transferring property ownership into joint names while preserving principle private residents’ relief.
Letting relief
Update. Since the 2018 Budget, letting relief is only available to live-in land . Therefore. This consideration will now only affect a minority of landlords, and even fewer who are married.
There is a further ‘letting relief’ where a property is let that has been the owner’s home. The gain which relates to the period that the property was let is exempt from tax. However, the amount of gain which can be exempt is capped at £40,000.
However, there is one letting relief per person. Therefore, the maximum letting relief, for the couple, would double to £80,000 for a property in joint names. There is the potential for a substantial capital gains tax savings if the property obtains letting relief.
Under section 223 (4) of TCGA states that, to obtain the relief, the property must be let by the property owner. Therefore,
- Letting relief would not be obtained if transferred to the spouse if the couple resumed occupation between the tenants moving out and the property being sold.
- However, letting relief will be available for both spouses when the matrimonial home is transferred into joint names and subsequently let.
The restriction above used to place some taxpayers in a quandary because, PPR was only available if the property was transferred while the spouse was living in the property. Since the Finance Act 2020, it is no longer a requirement for the acquiring spouse to be living in the property at the time of transfer to inherit deemed periods of occupation for PPR purposes. Therefore, if letting relief is available it is better to transfer the property while it is being let.
The April 2018 Budget narrowed the conditions in which letting relief can be claimed. From the 6 April 2020, letting relief is only available to landlords who have lived-in with the tenant. HMRC have clarified that the relief will not be available for periods where the owner was or is in shared accommodation with the tenant. Therefore, lettings relief applies where the owner no longer shares accommodation with the tenant. However, the relief will only cover so much of the period as the property was being shared with the tenant. It is possible in these narrow circumstances for a spouse to inherit letting relief.
Deemed PPR intact regardless of marriage
It is possible that an ‘inherited’ period will overlap with a period when that person had another PPR. However, this will not prevent the new owner obtaining PPR relief on both properties. The inherited period is used only to calculate the letting relief and principal private residence relief ‘fraction.’ For example, if a new wed jointly owns a property previously held by just one partner, the person moving in does not become liable to capital gains tax, just as a consequence of owning a property before moving in.
Deemed period of ownership can still be inherited by the transferee spouse even where the transferee spouse had a PPR during that deemed period. This overrides the usual rule that a person can only have one PPR at any one time.
The number of principal private residences is one per married couple. Therefore, the number of possible exempt properties halves when a couple marry. With joint financial status, some couples may be able to offset the reduction in PPR by acquiring a higher value home.
Update. Following the Finance Act 2020, for disposals on or after 6 April 2020,it is no longer a requirement for the transferee spouse to be living in the property at the time of transfer for the deemed periods of ownership to be inherited. This effectively means that the annual exemption and unused basic rate of a transferee spouse can be used without any loss of principal private residence relief for the couple.
Exposure to loss of PPR on divorce
If a couple separate, with one partner living in a new home and the other partner staying the matrimonial home, the partner living in the new home will be liable to tax. Under section 225B (of the Taxes and Capital Gains Act 1992), property of departing divorcee continues to be eligible for PPR. However if the departing divorcee buys a new home, and made a claim for Section 225B to apply, they would then be liable to capital gains tax on the home they bought after divorce. This is because a person can only have one PPR at any given time.
A Mesher order can be used where the departing spouse does not wish to force a sale of the former matrimonial home until children have reached adult age. This is expanded upon in the section below on Tax planning.
Tax planning
Principal Private Residence relief is among the most generous tax exemptions in the UK system. It provides a significant opportunity for retaining personal wealth. A few simple measures taken at the right time can significantly reduce tax liability. The loss of PPR and letting relief on half of the property could well be greater than any tax saved by doubling the annual exemption and saving in marginal rate.
It is highly tax inefficient for a person to be both landlord and tenant at the same time. Cash received as letting income will likely be taxed, whereas cash paid in rent will not obtain tax relief. For some sole traders use of home as office could be available. Furthermore, there is a rsk about loss of PPR. Certain periods of absence can be regarded as a deemed period of occupation where the property is re-occupied. However, if left too late the tenancy agreement might not allow for a re-occupation of the property in time. Couples often leave historical property ownership arrangements in place. An investment property should be contemplated - for tax purposes - once a person or couple have acquired their home.
A Mesher arrangement is one in which a property is placed in Trust following divorce. Any period during which the departing spouse lived in the property and up to the date the property is placed in Trust is eligible for princiapl private residence relief. Under section 225 of the Tax and Capital Gains Act 1992, the property still qualifies for PPR relief provided the property is occupied by the beneficiary. Since the departing spouse did not have beneficial ownership of the property while it was held on Trust, that period will not be regarded as a period of absence for PPR purposes. The Trust usually ends when the child reaches a certain age. Gains related to the period after which the Mesher Order is no longer effective are chargeable to capital gains tax. The final 9 month period of ownership could exempt periods during which conveyance arrangements are being made.
Separate reports cover the tax implications of a transfer of property into joint names for income tax, inheritance tax and stamp duty
Comments
The current £3,000 exemption provides limited tax relief especially at the current rate of 18% or 24% (depending on your tax rate.) However, you have correctly understood that you will inherit his periods of ownership for PPR purposes. In general, there should not be a downside, but you would need to become a client for me to advise on the tax implications as they apply to you.
Any legal costs associated with transfer into joint names could outweigh tax benefits. Consider stamp duty implications if your husband transfers a mortgage together with the property.
Consequently, in most cases it will be beneficial to move the property into joint names. This is provided neither of you have any other capital gains in the tax year of disposal, and/or neither have any capital losses.
The reason that it would benefit you is because you can use two lots of annual exemption and potentially increase the amount of gain that is taxed at a lower rate.
Incidentally, the annual exemption decreases from £6,000 to £3,000 on 6 April 2024. However the higher rate capital gains tax decreases from 28% to 24% on the same date. This means if your gain is £75,000 or more you are better off exchanging after 5 April 2024. That is because 4% of £3,000 is £75k.
I currently own a flat which I lived in from 1986 - 1995. I have since then rented it out to tenants. Regarding CGT would it be worthwhile legally transferring the property into joint names with my husband before sale and more importantly would my husband benefit from 9 years Private Residence Relief (+ 9 months) even though he has never lived in the property? Thank you
My husband bought a property in 2000 (before we were married) as his principle residence and lived in it with his daughter, I never lived there.
in 2001 we married and bought another property as our principle residence.
In 2003 my husband added me to the property he purchased in 2000 which was now let out, in 2014 he died and left his portion of the property to me.
I am now in the process of selling this property, What would I have to pay capital gains tax on.
Thanks Jenny
Probate value establishes base cost for capital gains tax purposes even when the transfer was exempt from inheritance tax (due to the spousal exemption.) Average cost is used to establish capital gains when the assets is purchased in portions. This is the same principal as applies to shares. Therefore you cannot stipulate that you are gifting only that portion that you inherited. Instead you would be gifting 50% of the whole. Using your example, that would be (£55k +£60k +£450k)/2, or £282.5k. The gain on gifting would be £167,500. The property would qualify for business assets disposal relief provided it has been used as furnished holiday letting at least two years prior to disposal.
The disposal of the property used in the furnished holiday letting business is an associated disposal. That means that provided you dispose of the asset within three years of ceasing the business it will also qualify for business assets disposal relief (with the resultant 10% rate.) Please refer to TCGA 1992, s. 169I(4).
I owned a holiday home with my wife, bought for £110k in 1990, renovated in 1990 for £120k, now worth c. £900K. Owned as tenants in common 50/50. My wife died in January, & I'd like to gift all or maybe half to my son, for tax purposes. For CGT, would I take the renovation & purchase price from £990K, then divide by 2, leaving approx £335K for the CGT liability? Or (preferably) take the reno & purchase cost away, PLUS the £450k value owned by my late wife (rather than divide by 2), off, leaving only £220k for CGT liability? And if gifting only half (ie making son a joint tenant), I presume it'd then be half that value again for CGT? (ie I couldn't use the ex wife's non-CGT liable half to avoid it)? It's also just qualified as a FHL which could help, though it hasn't been one for 2 years yet. Thanks so much for all your advice!
I have a property that is not currently my main residence that I am selling. I bought it in 2010 as my main residence and lived there for 3 years. After this, I moved into a rental property for 2 years and rented out the property I owned. After these 2 years I bought a second property as my main residence and continued to rent out the original property.
Do I get PPR relief for the 2 year period I rented out my property and myself rented another property (as I still only owned one property), or do I only get relief for the period I actually lived there (i.e. the first 3 years)?
Many thanks, Mel
You can claim letting relief for a lodger. Whether you are a liv-in landlord for tax purposes usually hinges on if you share the front door access with your lodger. The taxable portion would depend on the floor area (in this case 50%) and the portion of time for which your property was let. It is calculated to the nearest month where months the property was let is the nominator and months the property was owned is the denominator. Letting relief is capped at £40,000
I own a flat which I part rented for a period of time whilst living in it. I know I can claim PPR for the period of time I was living in it + the final 9 months of ownership, but can I also claim Lettings relief for the period that I lived in the flat and rented half of it? Also, am I right in thinking that there is no Lettings Relief now in relation to periods where the flat was let but I wasn't lving in it?
Many thanks
Matt
There is one property per person or married couple.
You have to live in a property for it to be your PPR. Therefore, if either property was rented prior to your marriage, that property would not be your PPR (unless you were a live-in landlord.)
Even if you are not co-habiting the number of PPRs reduces to one from the date of your marriage.
You have correctly identified that the final nine months of ownership is a deemed period of occupation. Therefore a former home will be exempt from CGT even after nine months of marriage.
At the time of writing the higher rate of tax is 28%
I am after some advice myself. We married in December 2021. My wife bought her primary residence in January 2019 and I bought mine in September 2021. We lived across both properties and the idea was to sell mine and move into hers.
We spent some time in 2023 renovating mine but the local council took 6 months to address a planning approval. In that time we lost our builder and we were seriously delayed and now it's only just getting sorted. In this time we lived across both properties.
We thought we had 18 months to dispose of mine but I have conflicting advice now that it is 9 months and we have overrun.
1) do we have 18 or 9 months?
2) If 9 what would I pay as a 40% income tax payer on a £100,000 profit
It really does seem unfair to be hit with a big tax bill just for getting married.
many thanks in advance.
Jamie
Rental income will be split between you and your wife based on beneficial ownership. As a side note, I advise that the beneficial ownership is transferred by deed and that this deed is posted to HMRC together with a form 17. This will ensure the transfer is effective for tax purposes; else you and your treated for tax purposes as 50:50 on any jointly held property.
On the basis that the process above has been observed, you would be taxed at 1% and your wife at 99% of the profits. Unless gross rents exceed £100k, you could claim the property allowance to reduce your taxable income to nil and as a result have no income tax on the rent.
The rate of tax applicable to your wife would depend on her other income. You wife would only be subject to tax at the additional rate if her total income exceeds £150k. It is common for beneficial ownership to be transferred to the souse taxed at the lower marginal rate, so as to save you tax as a couple.
Typically you do not have to pay stamp duty on a gift. This is because there is no 'consideration.' However, if you have transferred mortgage you have not made a gift and your wife could well have the additional 3% to pay on mortgage you have discharged as part of the transfer. An online stamp duty calculator will help with the more exact figures. At the time of writing, the additional rate only starts if the consideration (in this case mortgage discharged) is over £40,000.
The last part of your question was framed broadly and therefore my response will be similarly generalised. There is only one PPR per married couple.
Therefore to minimise CGT, retain more of your property wealth in your home. You obtain tax relief on mortgage interest and from an income tax perspective you will want to attach borrowing to your rental business activity.
There is one property per person -or per married couple- that is free from capital gains tax. This is known as the PPR.
It is possible for the departing spouse continue to treat the former matrimonial home as the PPR. This will apply in your case on the basis that you have been in rented accommodation since leaving the family home.
Therefore there would be no tax for you on transferring your share of the former home.
However the smaller property has not been your husband's home. Therefore your husband would be exposed to capital gains tax on transfer of his half of that property to you.
Usually as part of divorce proceeding each party is required to make a statement of assets and liabilities. Your solicitor should help with this and it is sometimes referred to as a form E. Any capital gains tax liability is treated as a liability. I am often asked to complete capital gains tax forecasts for divorcing couples so that an independent, expert valuation has been given to Capital Gains Tax.
In summary therefore if your husband has to pay CGT, this could effectively be shared.
However, you will also have a capital gains tax liability on disposal of your share, albeit not until you dispose of the property.
PPR is calculated on a property based on consideration less cost. CGT on the share of the smaller property that you have always owned will not be based on market value on the date of divorce.
It is unlikely that you will pay the same CGT as your ex-husband on eventual sale of the smaller property.
There are a number of complicating factors and too many to include in this chat. Suffice to say that you both have CGT on the smaller property, your husband when he transfers under the terms of divorce and you when you eventually sell.
Were you to sell the smaller home as part of the divorce, it is probable that your CGT would not be far out from his.
Technically you are taxed according to beneficial ownership rather than legal ownership. An occupant who does not pay rent is the beneficial owner. Therefore, if you did not receive any rent from your brother you cannot be said to be receiving beneficial ownership.
An issue arises however if you are seeking to obtain some form of compensation for disposal of your half. In that case, you have benefited from the property by way of receiving money (or money's worth.)
From a practical perspective , beneficial ownership will be harder to uphold in the event of any enquiry, because you are on the title deed and registered as the mortgagor. Beneficial ownership is especially hard to maintain if there were no trusts of similar agreements set up at the time of purchase to establish rights over the property, such as regarding occupation, use and disposal.
If you are selling the property for less than market value to your brother, you will be subject to capital gains tax based on market value.
Even if you are not selling your share but gifting it, your brother might still need to consider stamp duty implications. Stamp duty would arise on the value of any mortgage which you transfer to him in that scenario. This is because you would not be making a gift, but discharging a loan
I think you mean CGT implications.
Probate value establishes base cost for capital gains tax purposes. Probate value is the value of the property on the date that your mother died. When you gift a property, market value on the date of transfer determines "consideration" for CGT purposes. In broad summary, your taxable gain is market value on date you acquired the property less market value on date you disposed of the property.
Thanks for the information on this helpful site.
I purchased a flat in in 2014, and moved in with my then girlfriend (now wife). The attempted sale of this flat was blocked due to cladding issues, but we were still fortunately able to complete on the purchase of a house (in our joint names) in 2021, and paid the additional SDLT rate (it being my 2nd home). We are renting out the flat, but I would like to add my wife onto the deeds, and transfer 99% of the property to her to reduce my income tax liability.
1) Would this transfer attract the additional rate of income tax because it would be her 2nd home, and is not our main residence? So, we would be stung by the additional SDLT rate twice on different properties? I understand the SDLT would be based on the mortgage amount (£X)?
2) We would like to ultimately re-mortgage the flat to extract cash (if the cladding ever gets fixed), so that the mortgaged amount would be higher (£Y). Would it be preferable to transfer the equity to my wife now while the mortgage is £X, or would it make no difference in terms of the amount of SDLT if we transfer at the time of increasing the mortgaged amount to £Y?
3) Lastly, I understand she can benefit from my PRR. And CGT exemptions: we can consider any further transfer of equity immediately prior to sale. Any there any other stumbling blocks to consider with the above proposal?
Many thanks, J
Back in 2005 I helped my brother purchase his property, the property went into joint names (advice at time) as he could not get a mortgage on his own. I have never lived at the property & I have always considered it to be his home, I have my own home.
The mortgage will be paid off in next few months & I am wanting to remove my name from the property once mortgage paid off so he will be sole owner of his own property but keen to understand any implications?
He has always paid his mortgage & bills (I’ve only been on mortgage & joint names to support him).
I guess I need to know, will I be subject to capital gains tax given it’s not my home & I’ve never lived at property..?
Is here anything else I need to be aware of by removing myself as joint owner..?
Any advice appreciated.
Thank you
Karen
If I sold my current home and moved back there ,giving my brother a calculated 50% share, what are the CBT implications. Many thanks
I bought a flat in 2004 and it was my main residence. After getting married in 2011 we bought a marital home . The flat became a rental property from 2012 and in 2013 it was put into joint names with my spouse with rental income split 50/50. We plan to sell the flat in 2022 and I understand I can claim PRR for the period I lived in the flat as my main residence (plus last 9 months of ownership). What I am not sure about is whether my spouse qualifies for PPR on the flat as she never actually lived in it. Did she inherit my period of ownership once we married and became joint owners? Any advice appreciated.
Dave
You will not have to pay CGT until you dispose of the property. Base cost for CGT is probate.
Once you sell the property, taxable gains are proceeds, less the probate value of your late mother's half on her death, less the probate value of your father's half on his death.
If you gift the property market value is used instead of probate value in the above formula.
You are required to report capital gains with 60 days of completion.
You can claim PPR. Getting divorced does not affect your entitlement in this case.
Just wondering if you could help with this situation:
I owned a property which I originally purchased with my husband we both lived in their until he left we divorced and the property was signed over to me. I decided to rent the property out and moved into a rented property. I now want to sell the property and wonder if I calculate the CGT on the full house buying price even though I purchased it jointly with him and can I used the PRR for the period I lived there. Any help I would be really grateful
The income sharing ratio and capital sharing ratio will be the same. This is because you are subject to capital gains tax based on beneficial ownership. Your beneficial ownership of 100% was granted via HMRC's response to your form 17 submission and established via a pattern of actually receiving all the rent and including the rent on your Tax return. Therefore if you disposed of the property you would be liable to CGT on the entire gain. You inherit your husband period of occupation for the purpose of determining any PPR relief.
In answer to your second question, transfers between spouses occur for an amount that gives rise to neither a gain nor a loss, so the gain would effectively be computed by reference to his original cost.
There can only be one property per person, or per married couple, at any one time. Therefore, when you moved in with your husband your former residence ceased to be your PPR. It is not necessary to make any nomination to HMRC because you only do this where you divide your time between two properties. in your case, you only live in your husband's property. The final 9 months of ownership are a deemed period of occupation. You will obtain PPR relief for the period that you lived in the property and letting relief because you had a lodger.
Your proposal would not work, because where there is a series of linked transactions. Please see HMRC guidance CG14653 or refer to the TCGA 1992 section 20 for confirmation.
You can only have one PPR at any one time. Therefore, you cannot claim PPR on the property jointly owned with your mother while also claiming PPR on your other home. The only exception to this is the final period of ownership (9 months at the time of writing.)
If the property jointly owned with your mother was your only residence for any period then it would be partially exempt from CGT.
You might also need to consider whether gift with reservation rules apply so that the whole property (including the half gifted to you), needs to be included in the estate for inheritance tax purposes.
I have an equiry about CGT. My husband bought an investment property in 2002 and this was purchased in his sole name. In 2017, we did a remortgage on the property with both my name and my husbands and so I was added onto the title deeds. In 2020, we did a Form 17 where I held 100% of shares and my husband held 0% which we completed to lower our self-assessment tax bill every year, however we are now confused as to how the CGT will be calculated. Would we still both be able to use our tax-free allowance when submitting the CGT tax return, or would this only be done in my name as I hold 100% of shares as a result of the Form 17? Also, seeing as my name was added onto the property 15 years later, how is the CGT payable and when would this be payable from? Thanks in advance!
I have owned a flat for 19 years, resident main home until marriage 2.5 years ago where I spend part of the time in my spouse’s property which he owns outright. We have not transferred either property to each other so effectively own one each nor did we know we needed to nominate a property and had planned to sell mine 1 year ago but Covid and a flood last year requiring 12 months of renovation delayed this. I have shared the flat with a paying lodger (for 6.5 of the last 8 years, bar the period of renovation). We are unclear if I get some exemption when I sell my flat for the period of main residence and letting, and if we should later sell my spouse’s house whether that is then treated independently? The house has been a main residence for its entire ownership with no letting. We remain separate in terms of voting and council tax, registered to our independent addresses.
I am joint owner (30% Tennant in common) of a property with my wife (30%) and mother in law (40%). We are probably going to sell the property in the next couple of years. On sale I assume that my mother in law will not pay CGT on her share as she has lived in the house since we bought it 10 years ago, but the my wife and I will. To mitigate our CGT could my mother in law buys us out in two tranches (buying 15% from each of us in this tax year and the same again in the next) prior to selling. Our CGT liability is about £25k each so by selling over 2 years it would pretty much be covered by our annual allowances. Would selling shares of our tennancy in common trigger stamp duty?
My mother added me as joint owners back in 2006. I moved out for 7 years after this but sold that house to move back when my mum was diagnosed with dementia and has now gone into a care home. My previous sale was free of cgt as my primary residence and I was informed I just lose these years from my primary residence relief when I sell my mums home to fund her care etc. This is the jointly owned property in which I currently reside.
Would I be liable to cgt should I sell our jointly owned property and any other potential taxation I may have over looked?
Many Thanks,
Matt
Eligibility for PPR relief is not directly related to whether you are working overseas. If you do not own the property that you live in while overseas and return to live in the UK property after your work overseas, your period of absence from the UK could be regarded as a deemed period of occupation for PPR purposes. This is because you can only have one PPR at any one time.
A further complication is that the number of PPRs reduced to one when you get married. This is because there is one PPR per person or per married couple.
Therefore, you would not avoid PPR as a couple by moving the property into one or other your names.
To assist with a better way to reduce the potential tax burden, please present me with practical alternatives that you would be prepared to accept. It would not be worthwhile for me to propose options for you that save tax, but are unacceptable to you because of the non-tax implications.
In answer to your second question, yes you are liable to CGT. If you own a property and sell it capital gains tax is based on your share of sale proceeds. Transfers between spouses occur for an amount that gives rise to neither a gain nor a loss for tax purposes. Therefore, your husband was not subject to any capital gains tax on his initial transfer to you and you effectively inherited his base cost for capital gains tax purposes. As explained in my previous reply, death creates a capital gains tax free uplift in value. therefore, the liability probably only arises on the 50% that you have held priori to his passing away.
Yes, you are potentially liable to capital gains tax on disposal of the properties. Death creates a capital gains tax free uplift in value. Therefore, if he transferred the remaining 50% when he passed way that portion would not be liable to capital gains tax. You would need to check with a probate solicitor as to any liability to inheritance tax. Probate value establishes base cost for any future disposal. You might inherit his periods of occupation for the purpose of calculating any principal private residence relief.
In this respect, the principal private residence rules are unaffected by you being non-resident at the time of disposal. You could also assess whether a better tax saving could be achieved using an April 2015 valuation.
I own a property with my soon-to-be spouse, as tenants in common (with mine the larger share). I will soon be working overseas after we get married and will become non-resident for UK tax purposes. Having done some research, I understand that for the period of time I work abroad I will not be eligible for PPR relief upon selling the property.
After getting married and prior to becoming non-resident, is it possible to transfer the property to my spouse in full (or at least change to joint tenants) to reduce the CGT burden when we come to sell? If so, what is the process for doing this (presumably a change of deed) without incurring a tax charge now? Please let me know if there is a better way to reduce the potential tax burden.
Thanks!
My late husband bought a property in 1988 (we were not married then) We got married in 1993 and moved to Singapore until 2007. Meanwhile he bought another property in 1997 and rented it out. Once we returned he gifted me 50% of both the properties (as in he put it in joint ownership) He passed away in 2019. Am I liable for the CGT from the time he purchased both the properties i.e1988 and 1997.
Update. Following the Finance Act 2020, for disposals on or after 6 April 2020,it is no longer a requirement for the transferee spouse to be living in the property at the time of transfer for the deemed periods of ownership to be inherited. This effectively means that the annual exemption and unused basic rate of a transferee spouse can be used without any loss of principal private residence relief for the couple.
Does this also apply if I am not living in the UK?Would my wife get the deemed private residential relief as well as me as I lived there for 35 years previously if a do a deed of trust. Or should I wait till I return to the UK? I will return to the UK in 2022 for 6 months to sell the house.
Market value at the date of transfer determines consideration in the case of a gift. This means that capital gains tax would be calculated by reference to current market value.
the only exception is transfers between spouses which occur for no gain/no loss for tax purposes.
On subsequent disposal of the property to your son, market value would also be used for determining taxable gain. However the portion of the property transferred by the other couple would have a higher 'base cost' for CGT purposes.
In simple terms you would not therefore be tax twice on the gain, once when other couple transfers and again when transferred to child.
Consider as well stamp duty implications and in this light whether it would work out cheaper for the other couple to transfer direct to child.
You and your wife each need to fill in a Tax Return on the disposal of jointly owned property. There is no joint Tax Return in the UK for married couples.
The most common arrangement for married partners is that each spouse owns 50% of the property. The tax system will automatically tax you as such, unless, you have a legal agreement showing a different percentage ownership and a form 17 was filed with HMRC prior to disposal of the property.
If you are not sure, you almost certainly own the property 50:50. In that case, half of the expenses are tax deductible from your gain, and half from your wife's gain.
2. If we have to fill separate forms do I have to to split all the numbers how much it cost , for how much was sold, expences ie.)?
regards
1. do we both have to fill the form separately?
2. if we have to fill separate form do I have to to half everything in term of expenses, amout when bought property and gain?
please help
A capital gain tax forecast, based on a specific set of circumstances would be subject to a separate engagement and therefore fee. A gauge of my prices can be found on the pricing page https://comanandco.co.uk/pricing, however a fee in the region of £100 to £200 would be typical for a relatively simple forecast.
Death creates a capital gains tax free uplift in value, and the transfer of assets from one parent to surviving spouse could therefore save you tax as a family as compared with transfer of property as a lifetime gift, also known as PET (potentially exempt transfer.)
Thank you for your information on your website.
There is a second property bought by Mum, Dad, Son as joint tenancy, all equal shares. To let out. Bought for a total value of 50k.
Dad dies, property market value is 100k
Mum dies, property market value is 200k
Son transfers house to himself and spouse (joint tenancy), market value 200k. Still used to let.
They sell house when property market value is 300k.
What would be the CGT for the Son and his spouse?
Thanks,
Dajan
Transfers between spouses occur for an amount that gives rise to neither a gain nor a loss. Therefore your husband could gift that or any other property to you to make use of your annual exemption.
You do not need to wait until your brother-in-law has died or vacated the property or any other event to make use of the spousal exemption.
You are subject to capital gains tax at the higher rate to the extent that income and gains exceeds the higher rate tax threshold. Therefore, transfer of property does not necessarily result in less tax. let us say your husband has unused basic rate and you do not, the extra tax paid by you as a couple could outweigh the benefit of doubling the annual exemption. Other factors, such as your respective brought forward capital losses could also affect the capital gains tax position.
Death creates a capital gains tax free uplift in value. Therefore if your husband disposes of the 50% share inherited your brother in law, shortly after your brother in law's death he might not have any tax liability on that portion in any case.
Your husband could consider his Will so that should he die, your brother-in-law can still continue to live in the property and your husband's share could benefit from principal private residence relief under Section 225 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992.) This is a complex area. You could also look into Trusts for vulnerable people which benefit from preferential tax treatment.
It is no longer a requirement for your wife to have been living in the property when she transferred it to you in order for you to inherit her period of occupation for the purpose of calculating PPR relief.
My husband inherited 50% of his mothers home, 5 years ago. My brother in law owns the other 50%. He continues to live in house, as was her spoken wish until he dies. He is blind and disabled and it is his only home, he will leave his share to my husband on his death (if not used for care home fees). We do not receive any money from him, and we help him with shopping cleaning and hold LPA for him, this enables him to continue to live there.
Can my husband gift half of his share to me to use both the capital gains tax relief if and when we sell it.
Thanks Marie
Yes the property is transferred to your wife for capital gains tax purposes for such an amount that gives rise to neither a taxable gain nor an allowable loss. Therefore the original cost, plus an other improvement costs. From a CGT perspective what is relevant is the total cost of the property and the percentage ownership share on the disposal date.
I've a property held jointly with my wife. Prior to her name being put on the title deeds, I carried out renovation works on the property. When I go to sell, I'm wondering do those renovation works only pull into my CGT computation or half into both mine and my wife's? Thanks, Ross.
Your wife inherits your base cost for capital gains tax purposes. Transfers between spouses occur for an amount that gives rise to neither a gain nor a loss. Therefore, if she is also non-resident at the time of disposal the April 2015 would apply to her. I am not sure where you are finding an April 2017 re-basing.
I have been Non UK resident for several years. I would like to transfer my properties into joint ownership with my current wife ,but would I lose my automatic rebasing of the CGT cost base of April 2017 for these properties should we sell them in future before I come back to the UK. The reason for the transfer is for income tax reasons on the rental income which, for now I am the higher rate tax payer and my wife receives no income at all. Would you kindly offer some advice or suggestions on this ? Many thanks, Alan
You have understood correctly. Transfers between spouses do not give rise to capital gains tax.
To say capital gains tax will be half what a single person will pay is not correct. You will each be entitled to the annual exemption. This is likely to be a tax saving.
To the extent that combined income and gains make you a higher rate tax and do not make your wife a higher rate taxpayer you would save tax on the difference.
If it is a large gain, it will mostly be taxed at the higher rate and therefore the tax saving would be a lot less than half.
If your wife is now receiving rent, she will need to declare his on her Tax Return.
I bought an investment flat (no mortgage) and have been renting out for some 20 years. I now would like to add my wife to the title deeds as joint owners to make it more tax efficient when I sell the property in say 2 years time. I understand that there is no capital gains tax when I add my spouse to the deeds. My spouse will also receive half of the rent. I have assumed that when I sell the property the capital gains tax will be half of what a single person will pay. Is this correct?
You acquire your husband's half in 2021 for an amount that gives rise to neither a gain nor a loss. This means, effectively, the cost for capital gains tax purposes is what you bought it for.
You do not get any uplift in value in 2021 for capital gains tax purposes based on whatever his half is.
As an aside, you would get a capital gains tax free uplift in value where a property is acquired via inheritance.
I cannot advise on whether a deed can be changed as that is not my area of expertise. However, I expect it would simpler to create a need deed transferring back whatever you wished to. Transfers between spouses occur for such an amount as gives rise to neither a gain nor a loss of CGT purposes.
Letting relief is only available to live in landlords, so neither of you would be eligible for letting relief unless you have a lodger.
As explained in the article above the transferee spouse would inherit periods of occupation for the purpose of determining deemed PPR. Based on what you have explained it is not obvious to me how your PPR eligibility would be affected.
property bought in 2014
property let for a period between 2014-2016
husband and wife living in the property since 2016
property will be sold in feb 2021
deed of trust currently in place to transfer beneficial income/ownership from husband to wife
1) can the deed of trust be revoked/annuled/or new deed of trust put in place to use both spouses CGT?
2) if so, will it preserve PPR and letting relief?
Thank you for your enquiry. Brought forward losses are set against current year gains. Any unused losses are carried forward and set against the next available gains after deduction of annual exemption.
If the loss exceeds your portion of the gain, unused part would be carried forward. Any unused losses on death extinguish.
For tax efficiency, consider transferring so much of the property to your spouse, as results in a gain in your hands equal to losses brought forward. This prevents wastage of loss.
Prior to 6 April 2020, the property had to be your husband's PPR at the time of transfer for him to inherit your periods of ownership for PPR purposes. Therefore, as a couple you have lost PPR on 50% of the gain by moving it into joint names. Since the property was no longer let when you transferred it into joint names, your husband would not be eligible for letting relief.
I am not aware of any ESC or other HMRC interpretation that guides to the contrary of what I have explained above. However, if you receive any contrary opinion please come back and contribute it.
I have a situation where I bought a house in 2004 which was my main residence until 2012 when I moved into my husbands house after we got married the same year. The property was then let until late 2018 when it was vacated . It was sold 1st April 2019. Pre sale in April 2019 of this house we were requested to transfer houses into joint names for re-mortgage purposes. I've now got into an issue as we anticipated the gain would be covered by PPR and letting relief but it seems the transfer may have prejudiced on 50% (owned as joint tenants at sale) as it was never my husbands PPR. Sadly we didnt take advice in 2015 and we were guided by the mortgage advisers.
We are now liaising with HMRC . Am assuming (now) the gain is split 50/50 my half share will qualify for PPR and letting relief but what about my husbands ? Is there any relief at all or an ESC ? Appreciate we may have been naive by not getting advice and any thoughts will be appreciated.
I understand that there is a benefit of utilising the annual allowance for a 2nd property owned jointly. However, if owner #1 has capital losses in his own name that can be offset against any capital gain on the sale of that jointly held property are the owners obliged to 'split' any capital gain prior to those losses being utilised? Can owner #1 choose to utilise those losses first before any remaining capital gain is taxed?
Thank you.
Under the old rules, if you transfer a property to your wife and she was not living in the property at the time of transfer, her half would not be eligible for PPR. Probably you have found that the PPR relief you would receive on one half of the gain achieves greater tax saving than use of your wife's annual allowance.
Transfers between spouses occurs for such an amount as gives rise to neither a gain nor a loss. So the transfer back from your wife should not give rise to a CGT liability.
There is a new regulation effective 6 April 2020:
Section 2 (b) (ii) to "omit “which is their only or main residence”, from section 222 (7)(a) of the TGA 1992:
https://www.legislation.gov.uk/ukpga/2020/14/section/24/enacted
The original legislation section 222 (7)(a) of the TGA 1992 can be read here:
https://www.legislation.gov.uk/ukpga/1992/12/section/222/enacted
It used to be a requirement that the transfer occurred while the property is the main residence of your wife lived in it. However since 6 April 2020 this is no longer a requirement.
It is no longer a requirement that the transfer occurs while the property 'is' her main residence.
This will help save tax for married couples in the same situation as you.
I have a property that I bought in 2007 and lives in until 2012. I got married and we moved out into another home that we bought. I then let it out but transferred 90% ownership to my wife in 2014 to benefit from her lower tax rate. I'm looking to sell now - would transferring back to me give it the full PRR now? Or if there was a way to legally null the prior declaration of trust?
If that's the case, I guess it would make sense to transfer a % that would maximise her allowance?
Thanks,
Idio
You need to be living in the property when your wife transferred it to you in order to inherit her period of occupation for the PPR relief to apply.
If she transferred it to you while you were not living in the property, you would not be eligible for that period of PPR.
The benefit of transferring a property into joint names is a potential doubling of the annual exemption and use of any of your unused basic rate.
The pitfall is that if you are not eligible, your share (in this case 50%) would not be eligible for PPR. Consider transferring back into your wife's name prior to disposal.
In the rare circumstances that moving back into the property is practical prior to disposal, consider transferring the property into joint names once you have moved back in. Usually the cost of moving home outweighs any tax benefit from doubling of the annual exemption.
My wife and I had a house together for 213 months which was recently sold, My wife occupied the house as her main residence for a period of 128 months and I know that she can claim the PRR relief for that period, however, my question is do I also get PRR for 128 months to deduct from my share of the gain if the house was in both our names as it would be my deemed occupation and we are not separated?
or is it just the one PRR relief that can be deducted from my wife's share of the gain and not mine?
Also if PRR does apply to me then can twice the PRR and twice the CGT allowance be deducted from the net gains before being split 50/50 to get to mine and my wife's taxable gain?
Thanks,
Shahzeb
Your wife inherits your periods of ownership and occupation for the purpose of calculating PPR. The property was also let by her, and therefore she would be entitled to lettings relief.
Lettings relief is capped at £40,000 per person, so if you only owned 25% on eventual disposal, there is more likely to be a lettings relief restriction.
I have a similar situation having sold my old flat. My partner (now wife) moved in with me shortly after I purchased it in 2007. I transferred a portion of the property into her name (50%) before we moved out and rented it. More recently, before the sale, we transferred a further 25% to try and reduce our capital gains.
I think we need to split her capital gain into 2 portions I.e. 50% will have PPR and Letting relief applicable and the other 25% not have PPR and Letting relief as we had moved out.
Does that sound right?
Transferring the property into joint names would result in loss of PPR and lettings relief, because you were not living in it at the time of the transfer.
Probably the loss of PPR would outweigh the benefits of gaining an additional annual exemption.
You have correctly understood that you would be in a worse position after 6 April, because letting relief is abolished for all property owners except for live-in landlords (i.e. those with a lodger.)
Philip Hammond’s destruction of Letting relief in the 2019 budget has sent shock waves through the accidental landlord community and I now have to consider evicting my tenant & selling the flat ASAP!
I purchased a flat in 1990 in my sole name and lived there as my main residence, my partner (now my wife) moved in five years later. In 2006 redundancy meant we had to move and bought a new property elsewhere & the flat rented out. The flat is still entirely in my name and the new property is our PR. I was thinking of adding my wife equallly on the title deed now but from reading the other posts this may not be a good idea, as I would loose PRR and LR when I come to sell (although I would have a small extra CG exemption!). From a purely financial (rather than moral) point of view, what should I do to keep my potentially large Capital Gains to a minimum? If I sell after April 20, I will be in an even worse position.
Thanks Bob
The benefit of moving back into the property and transferring it into joint name prior to sale is:
Your husband would inherit your periods of ownership and occupation for the purpose of calculating PPR.
You would be entitled to two lots of annual exemption
You would be entitled to two lots of letting relief (which is capped at £40,000 per person.) Letting relief is being abolished for all landlords (except those with lodgers) from 6 April 2020.
If either of you have income less than the higher rate tax threshold in the year of disposal you would save tax.
The drawbacks of your proposal are:
Cost and aggravation of moving home;
PPR will exempt that period in which the property was your home. There is one PPR per person or per married couple. Therefore, it might not save you much tax.
You would lose PPR relief on your current home while you were living in the other property as there is only one PPR at any one time.
Lettings relief could be a benefit, but this is due to be abolished on 6 April 2020.
I owned & lived in an apartment for 6 years before buying another house (in my sole name) which I now live in with my husband. The apartment has now been rented out for 12 years and I plan to sell it next year. Once my tennants have moved out is it worth me and my husband moving in there & me transferring the apartment into joint names to obtain letting relief for us both to reduce my CGT bill?
It is likely that as a couple you would lose entitlement to principal private residence relief and letting relief on half of the gain. This is because the property needs to be transferred to you while you live in it in order to inherit his period of occupation.
My husband owns a property that he bought in 1990, we met in 1992 and when we got married he rented out his house. we now live in a house that is jointly owned by both of us. (ie our PPR)
He now wants to sell the property, is it worth transferring the deeds to joint names? to reduce the CGT due on the sale
I have never lived in the property, so am I correct in thinking that we would only be allowed one letting relief allowance.
Thanks
Diana
Transfers between spouses do not give rise to capital gains tax. The gain will be computed when you eventually dispose of the property to a third party. Technically, there may be a case for stating that you have forfeiting some fraction of your PPR. There may an obscure case law on the matter. In practice, I can see the sense in transferring the property back into your own name to keep PPR intact over the long term.
I am in the exact position as Nick from post #3.
I purchased a property in 2010 in my sole name and lived there as my main residence with my partner (now my wife) until 2014 when it was rented out. In 2016 I re-mortgaged the flat with my wife on the title deed, which on reflection seems a bad decision having lost out on PRR on my wife's 50% share of the capital gains.
Would stripping my wife of ownership and having myself as the sole owner again enable me to claw back my PRR? Could you please advise what the best option would be if I were to sell?
Thanks Jack
Good question. Principal private residence is calculated based on sale proceeds and original cost. Market value at the time of transfer to your wife is ignored. You wife inherits your periods of ownership and occupation for the purpose of calculating the PPR percentage. The calculation can get tricky and I would advise seeking professional tax advice.
I've just seen this post and wondered if you could help. I bought a house as a permanent residence in Aug. '92. I added my future wife to the deeds in Dec. '93, and she moved in when we got married in June '94. We've now sold it and HMRC want a late tax return for 16/17 for CGT. As it was empty for a while after we moved out I can only claim 70% PRR. My wife is claiming 64%. She has more basic rate allowance before hitting the higher rate so it makes sense for her to claim half. Market conditions meant at the time my wife was added it was still worth the '92 price, but the sale price was 6 times that. The question is, if we declare she had a half share in 1993 (for her CGT gain), should I enter the 1992 value for mine, as that is what I paid and that is what they ask for on the worksheet, or should I just declare half as I essentially transferred the other half to my future wife in 1993.
Many thanks.
The consideration on a gift is its market value. This means that you would be potentially liable to capital gains tax on the market value less original cost when you gift the property.
Transfers between spouses are free from capital gains tax. Therefore, you would both be entitled to a capital gains tax annual exemption [https://comanandco.co.uk/Capital-gains-tax] on disposal.
If you once lived in the flat you may also be entitled to principal private residence relief and letting relief as the article above explains.
To obtain letting relief, the property must be your husband’s home at the time you transfer it to him. Depending on the figures involved, transfer into joint names prior to gifting to your children could result in a higher tax liability than a straightforward gift.
The income sharing ratio has to correspond to the capital sharing ratio for a married couple.
In effect if you wish to split the profits 50:50 you would have divide ownership 50:50.
If you take the view that if you "were to split she would undoubtedly claim 1/2 the assets", perhaps you could consider the tax savings as a couple of transferring the property into joint ownership.
I have a property bought as a Buy to Let before I met my wife. I am now wondering whether I can simply split the income from the property 50/50 when I declare to HMRC (as the money goes in/out of our joint account and if we were to split she would undoubtedly claim 1/2 the assets) or whether I actually need to do the legwork to have the deeds + Mortgage changed. Unfortunately the mortgage won't play ball and transfer the mortgage without hiking the rate...
Thank you
You are correct. If you transfer the property while your wife is not living in it, it is not her PPR at the time of transfer and therefore she would not be entitled to PPR.
HMRC write that “the residence must be [the married couple’s] only or main residence at the date of the transfer”
http://www.hmrc.gov.uk/manuals/cgmanual/cg64950.htm
I should add that transfers between spouse do not give rise to capital gains tax, so you could consider reversing your decision.
I have just read this with dread!!!
I purchased a flat (my only residence at the time) in July 2004. In May 2005 my girlfriend (who became my wife in 2009) moved in and we both lived there until May 2007, when we let it out to buy a house between us. I still own the flat I but transferred it into joint ownership last year to try to reduce some CGT when we come to sell it. Should I not have done this now? Thanks Nick
You would lose out on PPR if you transfer the property into your husbands name. Effectively, PPR would be available on only 50% of the gain, (if you transferred half.) Your husband would not be entitled to letting's relief either. The property is not both owned and occupied by him at the time of the transfer and therefore there is no lettings' relief. You would only get one lot of £40,000 exemption.
You could consider transferring a percentage of the property, which gives rise to a gain which is equal to the annual exemption.
I own a flat which my husband and I lived in from Oct 2008-Dec 2012. We married in Sept 2012 and as we were in the process of moving house etc, the flat was not transferred into his name at that stage. The flat has been let out since we moved out in Dec 2012. I was wanting to transfer the property into joint names to take advantage of tax reliefs both for letting (as my husband is liable to tax at a lower rate than me) and on eventual sale. However, as the property is no longer our PPR, would I risk losing a proportion of PPR relief by doing this? I assume from your article that as the property is already let out, lettings relief would be capped at £40k rather than £80k? However, I would still be keen to get the benefit of my husband's CGT allowance if possible (but not at the risk of losing PPR). What would you suggest? Thanks Sarah