CGT again sorry

[ctfrancis]

Hi there,

I appreciate there are CGT topics about, and have searched but need reasurance.

Situation

Husband and Wife - Husband owns PPR in own name.

Husband - higher tax rate payer
Wife - pays tax at normal rate - 22%

Have got £200k to invest in property, mainly BTL which want to keep for pension pot.

I believe that Taper relief is available. Would it be better financially for the Wife to own BTL solely or jointly, considering the personal allowance relief?

Also i am slightly unclear with taper relief.
Say they bought a property for £100k then sold in 10 years for £200k what would the CGT be payable if the wife was still paying tax at the normal amount.

Many thanks

[Tax Accountant]

It is normally better to buy properties in joint names as tenants in common with your spouse. You can then specify ownership sharing in a trust deed, say 1% to you and 99% to your wife. This will make it easier to change your ownership shares to say 50/50 if your circumstances changes in the future or to receive 2 x annual exemptions for CGT purposes when you wish to sell the property in the future.

This also hepls for IHT planning if you wish both spouses to benefit from £275,000 nil rate band for each spouse. For this reason, you may wish to transfer the existing property to both spouses as tenants in common.

Taper relief is applied to reduce the chargeable gains at business asset rates or non-business asset rates. A BTL will be at non-business asset rates. Taper relief was introduced from 6th April 1998 and the rate is dependent on the length of ownership of the property since that date and selling. A bonus year is added if the property has been owned since before 17 March 1998.

For new properties, rate is 5% after completion of 3 years and a further 5% for every complete year thereafter until you reach a maximum of 40% after 10 complete years of ownership. Taper relief is applied to chargeable gains remaining after all other reliefs have been deducted.

Assume a BTL has been owned at 17 March 1998, and is sold in 2005-06. Taper relief will reduce gains by 30%. Balance is then reduced by annual exemption of £8,500 and the rest is taxed to CGT.

In your example, you have a gain of £100,000 less taper relief of 40%, leaving £60,000 less annual exemption in the year of disposal. Rest is added to her other taxable income and gains in the year of disposal and taxed to 10% and/or 20% and/or 40% depending on how much of it falls in the lower rate band, basic rate band and higher rate band.