Marriage, transfer to joint ownership Income Tax and CGT implications

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    Marriage, transfer to joint ownership Income Tax and CGT implications

    In 2010, I married my wife and moved in to her flat with her - which she has owned since autumn 1999.

    We lived there until early 2012, when we purchased a new home. To expedite the sale, we retained the flat and prepared it for letting. From April 2012 we have had tenants in the flat.

    Unfortunately we didn't think to transfer the flat into joint names while we were still living there, and currently it is still in my wife's name only.

    (We have no mortgage on the flat, but we do have a mortgage on our current residence.)

    1. Is there any way now that I can inherit or have a share in my wife's Private Residence Relief for CGT purposes? (That is, apart from moving back in to the flat at some future time - which we don't want to do.)

    2. If I don't qualify for Private Residence Relief on the flat, could I still claim Letting Relief against CGT because it was for a while my main residence, or is Letting Relief only applicable for those who are eligible for Private Residence Relief?

    3. I currently have almost no income, but my wife is a basic rate tax payer, and at present all the income from the flat is taxable as her income. What can we do so as to use my tax allowance against the rental income from the flat, while not impacting too much on future CGT liability if we need to sell?

    I am not very well-versed in tax issues. Would either of these work, and if so which would be best?

    Can anything be done retrospectively for the income from 2012-3, or for the income to date in the current tax year:

    -> "A declaration of Trust". I don't understand how this works.
    - Would this suit our needs?
    - Is this completely separate from transferring ownership and with no CGT impact?
    - Could this be set up retrospectively in any way?
    - Where can I read more about this?

    -> My wife could pay me to manage the property. This sounds nice and simple.
    - Any downsides?
    - Would HMRC accept that £5k per year was a fair payment for this work for one property, or might they object?
    - Could this be set up retrospectively in any way?

    #2
    Can no-one help with this?

    In summary, my wife owns a property in which she lived for 12 years, and in which I lived with her after we were married for 15 months. It was our sole residence.

    We are now letting it and living elsewhere, but I am not earning and we can't use my unused tax allowance against the letting income because the property is in my wife's name only.

    We've been advised that if we had put the property into joint names while I was living there, I would have inherited all my wife's period of residence and it would have given me both Private Residence and Letting Relief against any CGT when we sell. BUT, they say that since we didn't do that *while I was living there*, it's now too late, and there's nothing that can be done (unless we move back in there for a while before selling, which we don't want to do).

    Can this be correct? It seems bizarre - surely the fact that we were married while living there means that we shared ownership, and I should be able to get some PRR and LR as a result?

    What options do I have to use my tax allowance against the rental income without jeopardising my wife's benefits re CGT when we sell?

    Comment


      #3
      Can no-one help me with this? TaxationPete, can you help?

      Comment


        #4
        Death, inheritance and Capital Gains Tax

        What happens when someone dies

        When someone dies, the assets they own pass to the person looking after the estate. This person is known as the 'executor' or 'personal representative'. There's no Capital Gains Tax to pay at that time, even though the assets have changed hands.

        What the executors or personal representatives do

        The executors or personal representatives are responsible for dealing with any Capital Gains Tax due to the date of death. Capital Gains Tax may be due on assets that the person sold or disposed of before they died.

        After they've dealt with all the tax and financial matters of the estate, the personal representatives pass the remaining assets to the 'beneficiaries'. Beneficiaries are people who inherit assets. There's no Capital Gains Tax even though the assets have changed hands.
        The personal representatives may sell or dispose of the assets and pass on the money (or 'proceeds') instead. They'll need to work out the gain or loss on the disposal of the assets.
        If you're acting as a personal representative for the estate of someone who's died, you may find the links below useful.
        Warm regards

        Simon Misiewicz
        Property Tax Specialist & Property Investor

        Comment


          #5
          Tax at the time you inherit

          When you inherit an asset from someone who's died, there's no Capital Gains Tax to pay at that time.
          There won't be any Inheritance Tax due either if the whole of their estate is worth less than the Inheritance Tax threshold (£325,000 in 2012-13 and 2013-14).

          The personal representatives will usually pay any Inheritance Tax due from the estate's assets before you receive your share.

          Selling or disposing of assets you've inherited

          When you sell or dispose of an inherited asset, you may be liable to Capital Gains Tax on any profit or gain you make.

          You'll need to get a valuation of the asset at the date of death. Use this value as the cost of your asset to work out your gain or loss. If the value has been agreed for Inheritance Tax purposes you should use the same valuation.
          Warm regards

          Simon Misiewicz
          Property Tax Specialist & Property Investor

          Comment


            #6
            Gifts and Capital Gains Tax

            If you sell, give away, exchange or otherwise dispose of an asset and make a profit or gain, you may have to pay Capital Gains Tax.

            So you may have to pay Capital Gains Tax when you give an asset as a gift to someone.
            The rules are different depending on who you give the gift to.

            Gifts to your husband, wife or civil partner

            You won't have to pay Capital Gains Tax when you give a gift to your husband, wife or civil partner - as long as both of the following apply:

            you've lived together for at least part of the tax year in which you made the gift
            the gift isn't 'trading stock' -trading goods bought for resale; However, if your husband, wife or civil partner later sells or disposes of the asset, they'll have to pay the tax on any gain. Tax will be due on any gain made over the total period of ownership - yours and theirs. But they'll only need to work out the gain since 31 March 1982. There's now no Capital Gains Tax due on gains arising before that date.

            It's useful to keep a note of what the asset cost you. Your spouse or civil partner may need this to work out their Capital Gains Tax when they dispose of the asset.

            Example
            Mr B lives with his wife and gives her an antique table that he bought for £12,000 in 2002.
            Mrs B spends £500 restoring the table, eventually selling it for £20,000.
            Her total costs are £12,500 (£500 plus Mr B's original cost £12,000).
            Mrs B's gain is £7,500 (£20,000 less £12,500).
            Warm regards

            Simon Misiewicz
            Property Tax Specialist & Property Investor

            Comment


              #7
              I'm afraid that much of this seems completely irrelevant - death and inheritance has nothing to do with it?

              You seem to have posted the same reply to a number of different threads from different people, and this doesn't answer my question at all.

              Comment


                #8
                Buy Carl Hayley's " How to save property tax" and/or talk to an accountant who knows about these things.
                I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

                Comment


                  #9
                  Thanks. I have borrowed it from the library. Very good, but doesn't cover my specific scenario. Looks like it's £90+ per hour to an accountant then!
                  Was trying to avoid having to use an accountant as actual tax payment likely not be be much over £1,000/yr, so limited opportunity to save what I spend in accountants fees!

                  Comment


                    #10
                    Originally posted by geoffg.landlordzone View Post
                    Looks like it's £90+ per hour to an accountant then!
                    From your posts I assume that you only have one rental property. My accountant, who's company advertise on this site, charges £300 + vat a year, for 2 tax returns and advice.

                    Comment


                      #11
                      You were never a legal owner of the flat so you can not claim PPR or LR only your wife can do that. Any share she gives you now will loose that share of PPR and LR.
                      A Declaration of Trust can direct the beneficial interest to you but you do not need a Form 17 as she is the sole owner. A couple of months before selling draw up a new DofT making her the sole beneficial owner so she can claim the PPR and LR.
                      You would have to run the numbers closer to the time but it may pay for you to retain a % of the beneficial interest to use up your CGT Allowance but beware it erodes the PPR and LR Reliefs.
                      "Can this be correct? It seems bizarre " Yes it is correct.
                      Moving back in would not help you as HMRC look out for these dodges and will deny your claim to PPR as it is clearly not your intention to make it your home as you will no doubt retain your present home then move back into it after selling the flat.

                      Regards Peter

                      Comment


                        #12
                        Hi Peter,

                        Thanks so much for your very helpful reply. Your help is greatly appreciated.

                        Geoff

                        P.S. "You were never a legal owner of the flat" It seems unfortunate and somewhat odd to me that our being married has apparently little bearing on what we own separately and what we own together. I guess that I just have to acknowledge that the law and taxation are rather odd and arcane at times.

                        Comment

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