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bigduckontax
bigduckontax, Accountant
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Can I transfer a rental property to my wife so that she can

Customer Question

Can I transfer a rental property to my wife so that she can use her personal Tax allowance against the income and at a later date (before sale) transfer it back to me and keep my CGT relief.

The property was bought in 1990 for £50,000 and is now worth about £200,000 and I lived there for about 12 years so get £72,000 residents relief (150/25 * 12)
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

In a word, why go to the bother, what a palava? Much better your wife be self employed and charge her management fees to you against the rental fees. Ensure she makes a substantial contribution to the operations of the rental business.

To calculate your Private Resident Relief work out your ownership period in months [288]. Work out your occupation period [144]. Take one from the other [144]. Take off a further 18, last 18 months of ownership don't count [126]. Now take your acquisition price plus purchase costs, add to it any improvements eg new kitchens, installation of central heating and deduct the selling price less costs of sale to give a net gain for CGT. As it stands that's 150K. 150 x 126 * 288 = 65.6 capital gain. Deduct your Annual Exempt Allowance of 11K leaves 54.6K taxable at 18% or 24% or a combination of the two depending on your income plus the gain in the year of sale, worst case scenario 15.3K tax payable.

I do hope I have thrown some light on your position and been of some help.
Customer: replied 2 years ago.

I really wanted an aswer to the specific question, I have calculated the CGT position and think it's much less than the 54.6k, surely as I've let I get letting relief as well and as we can jointly own we get 2*11k CGT relief. What I want to know is when it is sold can I still get the residence and letting relief, providing that it is back in my name (or two lots if in joint). I am trying to avoid paying Tax on the income as I now as of this month no longer have any interest to offset.


 

Expert:  bigduckontax replied 2 years ago.
Sorry, you are completely right! I had a complete blank out on Lettings Relief. I don't know what got into me!

Right, Lettings Relief:

The maximum Letting Relief due is £40K. So net gain is 65.6K [the calculation allows for the element of Private Residence Relief to which you are entitled] - 11K - 40K = 14.6K @ 28% = say 4K tax due.

Unfortunately you cannot bring your wife's Annual Exempt Allowance into the calculation at all. She does not own the property and if you made the transfers you set out in your question they would be ignored as inter spousal transfers are outside the scope of UK taxation.

As regards tax on the income I have already suggested a part solution and, of course, any other management expenses, agents fees, utilities, council tax etc, the list is not exhaustive, all count against your rental.

Customer: replied 2 years ago.

I'm sorry but this is still not what I am asking - I know how to calculate my current CGT exposure and what reliefs I am entitled to (there are others as well that I can obtain that will legitimately take my CGT level to 0). What I need to know is:


If I transfer the property to my wife (given that there are no immediate tax changes for inter-spousal gifts of unencumbered properties) does this change the CGT position for the worse (i.e. no or fewer reliefs would apply)?


 


If it does change the CGT position for the worse can I transfer the property back in say 10 years time and get the reliefs back? Can I transfer part of the property and get 2*CGT relief and 2*letting relief if these reliefs are per person per property?


 


Your suggestion re management fees etc doesn't help as you could only legitimately charge a reasonable management fee - say 10% of rent.

Expert:  bigduckontax replied 2 years ago.
As far as I can see see there are no advantages in CGT terms to an inter spousal transfer, although from an Income Tax viewpoint there may well be. Every transfer counts as a disposal for CGT purposes I should also be interested to know to what other reliefs do you think you are entitled.
Customer: replied 2 years ago.

I have managed to speak to HMRC and the answer is that reliefs do NOT transfer, even between spouses - the advantage would have been on income tax at 40% as opposed to at 0%. Additionally if I part transfer then the rules imply that this is a transfer at original cost - therefore my wife has a capital gain and can claim her CGT allowance as well as mine (on each part) but the loss of the PRR and letting relief make this unworkable. Thanks for your time but I can't really say that I got useful answers.

Expert:  bigduckontax replied 2 years ago.
I am sorry that you feel that you did not receive satisfactory service. I did tell you if I recall that a transfer between husband and wife was a non starter. I admit that Lettings Relief did completely escape me on my immediate answer for which I apologise, but I did correct that and gave you a revised estimate of tax due. I also told you how to reduce your exposure to Income Tax by ensuring that your wife made a substantial contribution to the letting business and thus could have the rental receipts transferred to her tax account.

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