Transfer PPR to spouse to save CGT

[bighousesmallhouse]

Hi

I own our family house which has been our PPR for the past eight years, which was bought for £100k.

We have just moved out and I want to sell the property to avoid any CGT on the £200k capital growth since buying it, but I don't want to get rid of the property altogether.

Can I sell the property to my wife at market value of £300k without paying CGT, and then when she comes to sell in a few years time she will only be taxed on any capital growth over £300k OR will she be taxed at the amount I originally bought it for?

Thanks to anyone who an help.

[Tax Accountant]

Hi

I own our family house which has been our PPR for the past eight years, which was bought for £100k.

We have just moved out and I want to sell the property to avoid any CGT on the £200k capital growth since buying it, but I don't want to get rid of the property altogether.

Can I sell the property to my wife at market value of £300k without paying CGT, and then when she comes to sell in a few years time she will only be taxed on any capital growth over £300k OR will she be taxed at the amount I originally bought it for?

Thanks to anyone who an help.

All transfers between spouses are effectively deemed to be at cost price and not as you suggest.

However, you are worrying unnecessarily.

All gains are deemed to accrue evenly over the lifetime of ownership. You have at least another 3 years since moving out for all gains to be exempt from CGT. This means you have 8 years residence + 3 = 11 years exempt altogether. Only the gains for the period thereafter are considered chargeable. But these chargeable gains could be further reduced or even eliminated due to other reliefs kicking in, such as lettings relief (this can exempt upto £40,000 chargeable gains), taper relief (this can reduce any remaining chargeable gains by upto 40%) and annual tax-free CGT allowance (this can reduce the final remaining chargeable gains by £8,800).

Assume you retain and let the property for the next 5 years and your total gains upto that date are £350,000. Total years owned will be 8+5=13, of which 11 years are exempt. You will have only 2/13 x £350,000 = £54,000 chargeable gains less letting relief £40,000 = £14,000 less taper relief (40%) £6,000 = £8,000 less annual CGT allowance say £12,000 = Taxable gains NIL.

As your wife did not own the property at anytime whilst it was her residence, you may find that it is best not to transfer it to her at all. Ideally, you should have transferred it into your joint names whilst it was your home. But as you will see from above calculations, you still have a long time before you have to think about any CGT liability.

Ramnik

[bighousesmallhouse]

Thanks a lot Ramnik, that's made my life that extra bit simple.

Are sales to children also deemed at cost price or can they be at market value?

(As I may sell the property to my daughter and she can gain a 95% mortgage which she can offset against rental income yielding a very low profit, whereas I would only be able to get relief on about a 60% mortgage)

Cheers.

[Tax Accountant]

Thanks a lot Ramnik, that's made my life that extra bit simple.

Are sales to children also deemed at cost price or can they be at market value?

(As I may sell the property to my daughter and she can gain a 95% mortgage which she can offset against rental income yielding a very low profit, whereas I would only be able to get relief on about a 60% mortgage)

Cheers.

Only transfers to spouses are at cost price.

Transfers to children are at open market value for CGT purposes regardless of whatever you choose to actually charge them. If you choose this option, remember that your daughter will be chargeable on all gains from the day the property is transferred to her. As she will not be using the property as her only or main residence, she will not be entitled to any Private Residence Relief for the final 3 years of ownership nor any lettings relief. She will also have to wait for 3 years before beginning to build up taper relief.

If you retain the property yourself, you could remortgage upto its full market value at the date when letting commences. The whole mortgage interest will be deductible in your letting accounts. You will also have at least the next 3 years gains (if any) CGT free. But this period will be longer than 3 years due to lettings relief, taper relief and annual exemption.

Don't forget to address your IHT planning.

Ramnik

[bighousesmallhouse]

Thanks Ramnik, you're a star! :D

[Tax Accountant]

Thanks Ramnik, you're a star! :D

Yeah, I know, but it doesn't help pay my mortgage.
Nevertheless, thank you for your appreciation .

Ramnik