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TaxRobin
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A couple of years ago my partner secured planning permission

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A couple of years ago my partner secured planning permission to build a 2 bedroom property on land adjacent to her main residence (the property belongs to my partner only, as will the new one). Once the build has been completed, our intention is to sell both the existing and new properties.
Construction is now in its latter stages, with completion estimated for late September/early-to-mid October. Having obtained estate agents' valuations, we estimate that once sold the new build will generate a profit of approximately £125,000. This amount (minus any relevant allowances etc...) will be liable for UK Capital Gains Tax, which my partner is keen to mitigate as much of the sale proceeds will be required for onward purchase.
My partner previously took advice on the possibility of involving offshore structures, with a Jersey registered company purchasing the land and putting in place nominee directors before the new property was built and sold. She was effectively told that this wouldn't work - as HMRC would still likely view the company as being managed and controlled from the UK. And for obvious reasons, she didn't want to find herself on the wrong end of a tax enquiry!
What we were now wondering is whether there would be any scope for my partner to transfer the property to myself on completion. There would be no 'consideration' paid, and the transaction would effectively be treated as a gift.
If we understand matters correctly, you don't pay 'Stamp Duty Land Tax' on gifted transfers, provided there's no outstanding mortgage on the property - which there won't be, once the existing property (which we both currently live in) is sold. Would I then be able to sell the new property as my 'primary' residence, which is obviously Capital Gains Tax exempt?
Finally, I'm not sure if it's relevant, but I should add that I do own a property - but that is 200 miles away, I've never lived in it, always rented it out and it's subject to a Buy-to-Let mortgage.
Any advice greatly appreciated.
Submitted: 10 months ago.
Category: Tax
Expert:  TaxRobin replied 10 months ago.

Hello

You are correct. If you get property as a gift you won’t pay SDLT as long as there’s no outstanding mortgage on it.

Primary Residence relief is allowed for your main home as long as:

  • you have one home and you’ve lived in it as your main home for all the time you’ve owned it
  • you haven’t let part of it out - this doesn’t include having a single lodger
  • you haven’t used part of it for business only
  • the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
  • you didn’t buy it just to make a gain

You don’t need to do anything. You’ll automatically get a tax relief called Private Residence Relief.

You can nominate one property as your main home by writing to HMRC. You want to do this because you do own another property. Even though it is outside the UK and used for letting.

Customer: replied 10 months ago.

Thanks!

Just to clarify, my other property is actually in the UK. But as I said, I'm not sure that's too relevant, beyond confirming that the new property would be my main residence.

Just so I'm sure on what you're saying, does the scenario which I've set out sound like legal/permitted tax planning?

On what you've said, if there was likely to be an issue it would be around my acquiring the property to make a gain. Could HMRC not simply say that's exactly what I've done - especially if the property is sold fairly soon after acquiring it?

The wording which you've used is 'buying' the property just to make a gain. However I won't actually have bought the property, as opposed to it being gifted to me. Is that relevant?

Expert:  TaxRobin replied 10 months ago.

It is relevant in that you need to declare this new property as your residence.

Sell fairly soon after acquiring could be questioned by HMRC because the PRR is not meant to allow a person to "flip" a property. You selling rather quickly could be seen as your and her avoidance to pay cgt.

It does not matter that you did not buy.

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Category: Tax
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Experience: International tax
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