Gifting rental property & CGT
Discussion
A bit of tax planning.....
My wife owns a rental property which she lived in as her main from 2013-2019 before we were married. It is currently rented out & we expect it to stay that way for a year or two yet. We now live in my house & so she is the classic "accidental landlord"
When she sells it there will be CGT to pay as a result. As I understand it that would be calculated on a percentage of the gain based on the time she lived there + 9 months as a percentage of her total period of ownership.
i.e. if she owns it for 10 years & lived in it for 5 years & 3 months then she would pay tax on 40% of the total gain (making use of her CGT allowance first obvs).
If she were to gift 50% of the property to me then (AIUI) there would be no SDLT or CGT implication at the point of gift.
At which point I would become liable for at least some of the eventual CGT when the place is sold. The obvious reason for doing it is to utilise my CGT allowance as well as hers at the point of sale. I also have some losses registered with HMRC which could be utilised in part as well.
Question: Am I liable for 50% of the CGT based on the total period of her ownership or is there some other calculation involved based on a valuation at the point of gift? i.e. if we wanted to do this does it matter when we do it? Is it a case of the earlier the better or does it make no difference as long as its done before the point of sale?
I also read somewhere that SDLT might apply on the value of the mortgage though that is well below the SDLT threshold so hopefully not. The mortgage is less than 20% of the value of the house.
Lastly, what (in outline) is the basic process for making a gift like this? Who has to be informed? I'm pretty sure it would need the lender's permission as well.
All thoughts gratefully received!
rockin said:
You didn't mention until the end that there's a mortgage!
The mortgage needs to be redeemed before you get to the starting line. Which usually means selling the house - and that crystallises her CGT.
No need to sell the house in order to redeem the mortgage if necessary, even temporarily ( I.e pay it off, gift 50%, remortgage, (maybe). )The mortgage needs to be redeemed before you get to the starting line. Which usually means selling the house - and that crystallises her CGT.
rockin said:
Wombat3 said:
No need to sell the house in order to redeem the mortgage if necessary, even temporarily ( I.e pay it off, gift 50%, remortgage, (maybe).
Well, if you're flush with cash it would be a good idea to seek paid, professional advice. 
To be fair, what you are describing quite complex and potentially expensive (from a tax point of view) situation so getting proper advice would be highly recommended.
I did look at your original question and I thought that, in order to answer it, you would need at least half an hour of consultancy with an accountant as there are multiple permutations possible.
I did look at your original question and I thought that, in order to answer it, you would need at least half an hour of consultancy with an accountant as there are multiple permutations possible.
Eric Mc said:
To be fair, what you are describing quite complex and potentially expensive (from a tax point of view) situation so getting proper advice would be highly recommended.
I did look at your original question and I thought that, in order to answer it, you would need at least half an hour of consultancy with an accountant as there are multiple permutations possible.
Thanks for that.I did look at your original question and I thought that, in order to answer it, you would need at least half an hour of consultancy with an accountant as there are multiple permutations possible.
There will be a CG liability at the point of sale & the standard calculation method where she retains 100% ownership seems clear enough
The thing I was most interested in understanding at the moment is what the rules are in respect of how the CGT is calculated & how it is transferred with a gift (if it is at all).
i.e. is the total liability going to be the same as if she retained 100% ownership. If not then how does it differ & whether the date of the gift (assume of 50%) has any bearing on how it is split.
The answers to those things would seem to determine whether this is something that should be looked at more closely sooner rather than later (or indeed at all!). So far I have been unable to find the relevant documentation on-line.
And I won't be providing you with answers because it would require a fair bit of my time to get the full facts from you, do a bit of research and then discuss the permutations and options.
This is not a simple scenario at all - especially now that CGT reporting rules have changed and HMRC has just admitted that they are in a bit of a chaotic state in combining the new direct reporting rules with the still existing Self Assessment rules.
Get to an accountant. It will be worth the effort and money.
This is not a simple scenario at all - especially now that CGT reporting rules have changed and HMRC has just admitted that they are in a bit of a chaotic state in combining the new direct reporting rules with the still existing Self Assessment rules.
Get to an accountant. It will be worth the effort and money.
Wombat3 said:
The thing I was most interested in understanding at the moment is what the rules are in respect of how the CGT is calculated & how it is transferred with a gift (if it is at all).
i.e. is the total liability going to be the same as if she retained 100% ownership. If not then how does it differ & whether the date of the gift (assume of 50%) has any bearing on how it is split.
The answers to those things would seem to determine whether this is something that should be looked at more closely sooner rather than later (or indeed at all!). So far I have been unable to find the relevant documentation on-line.
The link below seem to have the answer you are looking for.i.e. is the total liability going to be the same as if she retained 100% ownership. If not then how does it differ & whether the date of the gift (assume of 50%) has any bearing on how it is split.
The answers to those things would seem to determine whether this is something that should be looked at more closely sooner rather than later (or indeed at all!). So far I have been unable to find the relevant documentation on-line.
https://www.gov.uk/capital-gains-tax/gifts
As I understand it, you will have to pay CGT on any gain above the price that your wife had paid for the property. In effect, the CGT is deferred until you sell it.
As the property had never been your main residence, I *think* you will not benefit from the main residence relief and you and your wife would be worse off from a CGT point of view. Hopefully, someone with specific knowledge of this point will come along and confirm it one way or the other.
996c2 said:
Wombat3 said:
The thing I was most interested in understanding at the moment is what the rules are in respect of how the CGT is calculated & how it is transferred with a gift (if it is at all).
i.e. is the total liability going to be the same as if she retained 100% ownership. If not then how does it differ & whether the date of the gift (assume of 50%) has any bearing on how it is split.
The answers to those things would seem to determine whether this is something that should be looked at more closely sooner rather than later (or indeed at all!). So far I have been unable to find the relevant documentation on-line.
The link below seem to have the answer you are looking for.i.e. is the total liability going to be the same as if she retained 100% ownership. If not then how does it differ & whether the date of the gift (assume of 50%) has any bearing on how it is split.
The answers to those things would seem to determine whether this is something that should be looked at more closely sooner rather than later (or indeed at all!). So far I have been unable to find the relevant documentation on-line.
https://www.gov.uk/capital-gains-tax/gifts
As I understand it, you will have to pay CGT on any gain above the price that your wife had paid for the property. In effect, the CGT is deferred until you sell it.
As the property had never been your main residence, I *think* you will not benefit from the main residence relief and you and your wife would be worse off from a CGT point of view. Hopefully, someone with specific knowledge of this point will come along and confirm it one way or the other.
I think you may have hit on what would be the issue with this. I never lived there.
We are taxed in isolation so I guess the rules will therefore apply in isolation to each of us & if that's the case then I'd pay CGT on the full value of the gain for my share of the gain because I never lived there.
Having said that, as above, I have some losses to use & although maybe not the most efficient use of them, its also unlikely that I will have anything else to offset/use them against in the foreseeable future so it may be worth considering. From what I read on that link the timing of the gift doesn't seem to be relevant though.
No doubt there are other wrinkles that will need an accountant to sort them out & we will go down that route before we do anything.
Thanks for the thoughts.
According to the forum sponsor under the tax planning stickie, they provide a free service to PHer's from their dedicated team which includes a chartered accountant.. Not used them myself (and have no intention of using them as I rather use a paid professional), but be interesting to hear your feedback if you decide to go this route.
JulianPH said:
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