Working out my tax position? if I sell my rental....

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    Working out my tax position? if I sell my rental....

    Hello All,

    I am looking for some help working out my tax position. I bought a house back in 2003 and I lived in the house for several years. In 2007 I let it out and it has been let out ever since. The house was valued at about £290k back then. I had it valued today at closer to £420k. As a higher rate tax payer (not sure if that matters) how much tax would I pay on the percieved £130k profit.

    Just now the house is in my sole name but I am considering selling all or maybe 50% it to my wife who doesnt work to reduce the tax burden each year and if we sell. Would I need to pay stamp duty for this? I suspect I would need to remortgage at least as it would become hers?

    Very many thanks - I am just after an idea.

    Brian

    #2
    What was the purchase price in 2003?

    Comment


      #3
      The period under owner occupation plus 18 months from date you move out is exempt for capital gains tax.

      Since 2003 , you have owned the property for 12 years and you would be CGT exempt for 4 + 1.5 years = 5.5 years approx.

      So if your capital gain is 130K over 12 years , then 130/12 x 5.5 is exempt = 60K approx. and 70K is liable for tax.

      You can claim up to 40K lettings relief and 11K CGT allowance leaving 19K taxable at 18% or 28%.

      Comment


        #4
        As a higher rate tax payer the CGT rate is 28%.

        Tax follows beneficial not actual ownership, so if your wife has been involved with paying for the property (either directly or by paying other bills to allow you to pay the mortgage) or the mortgage is paid from a joint account and the rent paid into the same account, you might not need to transfer ownership at all.

        If you transfer property to your wife there's normally no stamp duty - if you re-mortgage at the same time that might trigger stamp duty.
        You need a solicitor to get that one right - an accountant should be able to help with the beneficial ownership issue.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          Hello All,

          Thanks for all the answers. In a perfect world I'd prefer not to touch the mortgage at all. We have always had the mortgage paid out of our accounts and the rent paid into the same. I'd be delighted if I were able to simply add my wife onto the deed
          without massive expense. The house was purchased for for £250k in 2003 to answer someone else question.
          It sounds like as my sole property I would be paying £5320 (28% of 19k?) if I sold the property today. If the property was in both myself and my wifes name would I be we then be using her 11k CGT allowance also? leaving 8k taxable between me and my wife? Would that be 28% of 4k and 18% of the other 4k for her portion or does it not work like that?

          Thanks for all the advice.

          Brian

          Comment


            #6
            Yes, you have got it right. You don't need to add your wife to the deeds. All you need is to have a declaration of trust drawn up and then complete a Form 17 which is a declaration of beneficial interest percentages and then send it off to the tax man with a copy of the DOT.

            Comment


              #7
              As the house is not in joint names, no Form 17 is required.

              Comment


                #8
                I don't think any declaration of anything is required.
                With a married couple, a bare trust would normally be assumed.

                The OP should talk to an accountant to be sure. If there are joint accounts paying the mortgage and receiving rent it should be fairly simple.

                Famous last words...
                Last edited by jpkeates; 19-01-2015, 23:21 PM. Reason: Added details of bare trust.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  Originally posted by King_Maker View Post
                  As the house is not in joint names, no Form 17 is required.
                  Oh yes. I forgot that!

                  Comment


                    #10
                    You as the sole owner are entitled to PPR and Letting relief. If you transfer 50% to your wife she can not claim PPR or LR as she was not an owner when you lived there together. You need to run the numbers to see the effect of this. Regards Peter

                    Comment


                      #11
                      Originally posted by jpkeates View Post
                      I don't think any declaration of anything is required.
                      With a married couple, a bare trust would normally be assumed.

                      The OP should talk to an accountant to be sure. If there are joint accounts paying the mortgage and receiving rent it should be fairly simple.

                      Famous last words...
                      I am married and I went through this procedure last year, I had a DOT drawn up (my accountant informed me this must be in place prior to exchange of contracts), and also, the proceeds of the sale had to be paid into our two separate bank accounts. In my own personal opinion, a bare trust between husband and wife sounds like it makes sense, but time was of the essence and I did what was suggested.

                      Comment


                        #12
                        The "bare" Trust scenario is not usually a tax issue - but a financial one. That is the party who is not the legal owner wanting to argue that he/she is due some of the sale proceeds.

                        I ALWAYS recommend that a DoT is drawn up to change the Beneficial shares, which should save any hassle from an HMRC challenge

                        Comment


                          #13
                          Hello All,

                          So to sumarise. If I want to be able to share the tax burden of a rental income with my wife - I need a Declaration of Trust. Is this a document that an accountant or a solicitor can draw up?

                          When I sell the property I will lose the taper tax relief as it was once my PPR if I am using my wifes CG allowance. Is this correct?

                          Comment


                            #14
                            Taper relief on residential property is long gone. You loose PPR and letting relief on the share you transfer to your wife. Yes you gain her CGA but you need to run the numbers to see the effect. Regards Peter

                            Comment


                              #15
                              bpascua,

                              1. Yes - a DOT is needed to transfer a share of the Beneficial ownership to your wife. If a charge is to be made, the DoT can only be drawn up by a solicitor or barrister, not an accountant (unless he/she is also a solicitor or barrister). The relevant share of the rent must actually go to your wife.

                              2. Yes, you will lose some PPR & Lettings relief, if the transfer is made when it's not your PPR.

                              3. Taper Relief was abolished some years ago.

                              Comment

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