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Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13919
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Hi, my husband and I jointly own 3 residential properties,

Resolved Question:

Hi, my husband and I jointly own 3 residential properties, one is our main home, the other 2 were originally purchased as a whole house and was our only home for 5 years when we converted the property into 2 separate flats and created a lease for each of the flats. The freehold is owned jointly as joint tenants, the lease of one of the flats is held jointly as joint tenants too and the other flat the lease is in my sole name. We are now getting divorced and the flat assets will belong to my husband and I keep the house. The flats will, at some stage in the future, be given to our 2 children.
My questions are:
1. Do I have a tax liability on the transfer of assets to my husband either before or after the divorce?
2. If we change the freehold to a limited company with both my husband and I as directors, does that minimise the capital gains tax liability?
3. If my husband does not buy any other property to live in but neither lives in either of the flats, does that lower the capital gains as in effect the flats are his only owned home.
4. Will my children have to pay capital gains tax on the gift?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.
Let me deal with your questions one at a time, based on the information you have provided.
. Do I have a tax liability on the transfer of assets to my husband either before or after the divorce?
If the transfers take place in the year of separation, then there is no capital gains to consider, as transfers between husband and wife do not give rise to a capital gain position. However if the transfers take place after the tax year of separation (and no asset transfer has been put in place in the tax year of separation) then capital gains will arise.
You will not be liable to any capital gains at all on the main residence, as, this has been both your homes throughout ownership, and, as long as you husband transfers his share before 18 months have lapsed (from the date he moves out) then he will not have any capital gains arising here either.
The flats however are a different matter. If the transfers take place after the tax year of separation OR there is no asset transfer put in place within the year of separation, then you will be liable to capital gains tax, on the transfers.
However, as this original whole property was your main home for the first 5 years, then those first 5 years along with the last 18 months of ownership will be form an exemption (so 6.5 years main residence/total period of ownership x gain)
And also the costs to renovate can be deducted (half share for each flat) – to change them into two flats, along with private lettings relief (as you rented these out and I assume declared rental income to HMRC) which can allow up to a further £40,000 relief.
2. If we change the freehold to a limited company with both my husband and I as directors, does that minimise the capital gains tax liability?
This would in itself create a capital gain to transfer the properties into the limited company, so would be false economy. Also if you have any mortgage outstanding on the property then stamp duty also has to be considered. Then disposal/gifting of the flats would create a corporation tax position , along with corporation tax due on the rental income, Plus the accountancy fees are high in running a limited company, so not a route I would advise.
Aside from this you have a limited company whose sole position is that of rental income.
3. If my husband does not buy any other property to live in but neither lives in either of the flats, does that lower the capital gains as in effect the flats are his only owned home.
No, it makes no difference, like you he would have the benefit of the time he lived there and the last 18 months as exempt under the private residence relief rules, and a consideration for private lettings relief, but it has to be his main residence to qualify for any further private residence relief.
But he cannot then elect to have this treated as his main residence, as it clearly would not be. If he moves into the flat that was in your sole name, after the transfer for a period that sees a qualitative period of time there, then this would be treated as his main residence, A move out to somewhere else, without a further purchase, could then permit him within 2 years to make an election to have this to be continued as treated as his main residence. But as long as no further purchase was made. An election would need to be made to HMRC
4. Will my children have to pay capital gains tax on the gift?
No, they are not liable to capital gains – if in receipt of a gift (nor income tax) but your husband would be liable to capital gains on the transfer to his children. Plus he laso would have to consider Inheritance tax, should he not survive more than 7 years from the date of making the gift, then the value of these would have to be added into his estate for Inheritance tax consideration.
The children – once in receipt of the gifted properties, would then take on the income tax position for the rental income (if this continued) and they too would have a capital gain consideration if they sold them and the value had increased from the value at the date of gifting.
If you need any further information, I would be happy to help, I am due to meet with a client shortly, but will respond as soon as I completed this meeting.
Thanks
Sam
Customer: replied 2 years ago.

Is there a way of continuing this conversation without it being publically seen?

Expert:  Sam replied 2 years ago.

niHI

Yes of course, but the only way is to continue this via a telephone call - this would require me to send a message offering you additional services, this will advise an amount for this additional work, which, once accepted will take this further amount from your bank (along with the original amount paid) -

If you are happy to proceed? If so just respond to this question and I can issue the request - and my telephone number, for you to ring me

If you do not wish to take up the additional services, then I am afraid the only way we can continue to communicate is through this Q and A thread, which I am afraid does not offer any privacy

Thanks Sam

Customer: replied 2 years ago.

Is there a face to face option and if so what are the rates?

Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
I am afraid a face to face option is not possible, as per the guidelines we are have to adhere to with our affiliation with Just Answer.
Its either the Q & A thread as we have been doing
Additional services which allow me to give telephone details so we can speak directly (which I am happy to do at a time other than now - if that suits)
Whilst some of experts are practicing accountants and do have our own client base, we have to make sure all contact is controlled through the Just Answer site, and I do apologise if this dos not, on this occasion meet your needs.
I am bout to meet with another client at 2pm - but will be back around 4pm and can make myself available anytime this evening, or another time if that would suit, for a telephone discussion?
I am online most days from 6am - ish (maybe a tad later this week as its half term!) to late evening (between 8pm and 10pm depending on whether I have friends and fmaily occasions)
Let me know, but if in the meantime you would be kind enough o rate the level of service I have provided, this will ensure I am credited, by Just Answer for my time thus far.
Thanks
Sam
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