replied 3 years ago.
Thanks for your question, my name is XXXXX XXXXX I am one of the UK tax experts here on Just Answer.
Lets look at the facts, on the basis that the buy to let investment would be in your name only, and you currently jointly own the property that you live in, and are unmarried.
Lets look at the investment property first
You will not be able to elect this buy to let as your main residence, as you will not live inn it, so cannot make that election.
But if at any time in the future it becomes your main residence, then the time you live there will be treated as your main residence, which will lessen any future capital gain position
First any rents that arise will be liable to tax and you will declare this income (and the allowable expenses) to HMRC via self assessment each year, and when and if, you come to sell, if this had in fact become, or had been, your main residence during any period of ownership, then the time you lived there, plus up to the last 18 months of ownership (this is currently 36 months, but this is due to change to 18 months as from 06/04/2014 and is awarded when a sale takes place AFTER the date it has ceased to be a main residence) will be considered as exempt.
But also note, that a gain is treated as having accrued evenly over the whole period of ownership, so lets say you owned the property for 10 years, and lived there for 2 years during year 7 and 8, then those 2 years, plus the last 18 months of ownership - so a total of 42 months/total ownership of 120 months would be applied against the gain, to establish what amount is exempt under the private residence relief rules.
PLUS if this has been your main residence AND you have also let this out to tenants during the rest of the ownership period, then you ALSO qualify for private lettings relief, which can allow up to a further £40,000 of exemption on the gain,
Then you also have the annual exemption allowance, which for this tax year allows the first £10,900 as exempt, and from 06/04/2014 increases to £11,100.
So that's the capital gain position.
As far as Inheritance tax is concerned, if you still own this property at the time of your death, then the value of this property will be added to your estate (which will consist of any other property. or share of property and assets, or any money held by you) and any amount over £325,000 will be charged at 40% Inheritance tax.
Now lets look at the main residence.
As things stand, any transfer that you make to your partner will NOT attract capital gains tax - as this is your main residence, so any gain at the time of transfer on your half share will be covered by private residence relief. However if you make this transfer, then if your partner were to pass away first then the whole value of the property plus any other assets or property or money, that exceeds the £325,000 threshold will be subject to 40% Inheritance tax.
As there is no benefit in transferring the whole share of the home to your partner and having the investment property in your sole name, it would seem (at face value) prudent to remain half share owners of both properties, as this spreads the load of the tax due on rental income, protects each of your half shares of your home, and your investment in this but to let, and also with the investment property allows 2 lots of annual exemption allowance, and if this becomes both of your main residences at any time during the ownership period, would also allow you 2 sets of lettings relief, so this would be more cost effective.
This is an initial run down on how things are, and my professional advise, but do feel free to ask any follow up questions on the information provided.
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