With people marrying later in life the chances of marrying a person with accumulated wealth have increased. This can cause both threats and opportunities for a married couple seeking to save tax.
A recent trend has been for property owners to let out rather than sell their property when they move home. One reason is that ‘letting relief’ exempts the period that the former home is subject to tax. However this relief is capped at £40,000. For many properties in London and other high value areas, the letting relief will not fully exempt the gain related to the period the property is let.
However, as there is one letting relief per person, the capital gains tax exemption for a couple could increase to £80,000, as compared to £40,000 if kept in sole ownership.
It is, however, necessary that the property is being lived in at the time of transfer for the property to qualify as a principal private residence. The spouse would not obtain letting relief if he or she obtains the property while it is being let out. However even if it is practical to move back into the property and transfer title into joint names at that time, this would still not necessary bring the benefit of letting relief. This is because it is necessary to be a landlord to obtain letting relief, and it is not likely a couple can be landlords of property that is also their home. This ignores the possibility of lodgers.
A further risk arises if the property has not been the spouse’s home, because principal private residents’ relief is lost on the value being transferred. This contrast with the opportunity for a spouse to inherit deemed periods of occupation on a home moved into joint names.
There are opportunities for a couple to save tax, but there are pitfalls as well. It may be suitable to obtain tax advice prior to bringing property into joint names, or prior to sale of a property in sole ownership, where combined ownership is a possibility.
A more detailed coverage of this topic can be read here: https://comanandco.co.uk/transfer-of-property-into-joint-names
Article Courtesy of: Coman & Co. Ltd.