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Sam
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A tax question on equity transfer. I have a second home

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Hi,A tax question on equity transfer.
I have a second home (non-primary-residence) currently in my name only.
I want to add my wife's name to the Land Registry entry for this second home (as joint owners).There seems to be 3 kinds of tax implications on non-primary-residence equity transfer(1) Inheritance tax -- should be nothing if I survive for 7 years after the transfer ?(2) Capital Gain Tax -- for non-primary-residence, is it still free from CGT for spouse transfer ?
Also, when the amendment is made to the Land Registry entry (to add my wife's name as joint proprietors)
would the purchase price shown in the updated entry be the original price or the latest market price ?(3) Stamp Duty -- this is a tricky one
There used to be a mortgage on this second home but has now been paid off.
The stamp duty is usually based on the considerations involved (none in this case) and the mortgage amount.
Although the mortgage is now paid off, there are some tax articles saying that any previous mortgage would
still be included for Stamp Duty purposes.
Is this true ?
This is worrying as not only the usual stamp duty rate is applied but also the extra 3% SDLT for second home.
Really need to clarify this -- might make the equity transfer not worthwhile.(4) Any other tax implications not mentioned above ?Please advise on the above points raised.PS
Actually, Our final aim is to find the most tax efficient way to gift this second home to our children,
in terms of minimising the immediate CGT liabilities, SDLT, etc.I know CGT has to be paid at some point, but just want to find ways to roll over CGT until my children
eventually sell the property. Could put into a trust but don't fancy doing all the trust accounting work.If you could advise on our final aim, then so much the better.Guess adding my wife's name as joint owners would be the first step (to share out any future CGT).
Submitted: 3 months ago.
Category: Tax
Expert:  Sam replied 3 months ago.

Hi, Sam here , one of the UK tax Experts here on Just Answer, thank you for your question and I shall reply shortly

Expert:  Sam replied 3 months ago.

HI

Thanks for your patience

There would normally be capital gains tax but when you add a spouses name then there is no capital gains treated as arising so you can proceed with this at no tax costs to yourself

Again no Inheritance tax as anything left to a spouse of the first death is not suing any of the Inheritance tax exemption NIL band

And for capital gains the transfer is treated as having arisen from the date of purchase- so the original purcahse price not an updated price

No stamp duty due unless there is an outstanding mortgage and your wife is refinancing with you - you advsie there is no mortgage so no stamp duty on this transfer

There are no other tax implications others then if you earn rental income from this property then from the date of transfer you both declare 50% of the rents and associated expenses

If in due course this property is transferred to your children then capital gains arises then as there is no roll over relief this is only for businesses - you could put this into trust but this needs to be considered with the assistance of a financial adviser as it all depends whether this earns income (in which tax would arise on the trust and the income would no longer be yours as its your children's and you would have capital gains placing this property into a trust and annual trust returns (so accountancy costs) and if you do not survive more than 7 years tax still arises on your estate

Note that we are UK tax experts and nor financial advisers which I am sure you can appreciate but I can state that

If your total estate is less than £325,000 (your half share) then there is no need to make things complicated with trusts as your Inheritance tax will be NIL anyway

Let me know if I can assist further or if you have all that you need, then pleae do rate me for the level of service I have provided

Thanks

Sam

Customer: replied 3 months ago.
Hi Sam,
Thanks for your response.
Follow up questions(I) When eventually gifting to children
(a) For outright transfer, one cannot avoid immediate CGT at transfer time. Then there is no difference to selling the second home and give the proceeds to children to buy another property for themselves ?
(b) There was a suggestion that we can gift a small percentage to the children every year (utilising both parents' CGT annual allowance). Although this might take a number of years to complete the 100% transfer but can avoid the massive immediate CGT as per outright transfer. What do you think ?
(c) You still have not suggested what is the best way to gift this second home to children.(II) After adding my wife's name, we plan to rent out the property. However, as the house is currently in a very bad state, we need to spend a lot of money (15k-20k) to do it up before it can be rented out. Just wondered if we can claim back this expense with future rental income. Please advise.
Expert:  Sam replied 3 months ago.

HI

Thanks for your response and further questions

1a No you cannot avoid capital gains at transfer time but if you sell the property and gift them the money then you still have capital gains on the sale and still Inheritance tax considerations if you should not survive more than 7 years from the date of gifting

1b This is complex to gift a little each year as you only have £22,600 ( 2 x capital gains exemption allowance) so can only gift a small percentage each year to remin under the limit - and span out the 7 year rule and Inheritance tax for each year a gift is made - you would need to seek financial advsie as to the pros and cons of doing this as this is a financial question as we are tax experts

1c I cannot offer suggestions we are tax experts not financial advisers - this is not in out expert remit which I made clear in my first response, and we are also merely an advisory service - and I have answers all your questions re you tax and Inheritance tax positions based on your proposal

You second question is over and above the price you offered for the original questions asked, but as I cannot offer financial advsie and this seems to be your first time on Just Answer, I will respond with no additional charges (as per Just Answer rules)

2) The costs to renovate the house might be offset against the future capital gains nut not against rental income - but they would need to be capital improvements such as complete new bathroom or kitchen or full double glazing or central heating installation so not just decorations and part replacements

You can only claim costs directly relating to the rental of the propriety against rental income - so keys cut, credit checks, drawing up of contracts, insurances,and repairs and maintenance whilst you actually have tenants in situ - so in between tenants if you carry out work this is NOT deductible against rents as there are none for that vacant period

Thanks

Sam

Customer: replied 3 months ago.
Hi Sam,
Just one more clarification.
In your first response, you mentioned
"There would normally be capital gains tax but when you add a spouses name then there is no capital gains treated as arising so you can proceed with this at no tax costs to yourself"
Since you have not explicitly mentioned "for second home" (non-primary-residence),
please confirm your statement above applies to second home -- which is one of my main concerns.
Are you saying that any transfers (what-so-ever) between spouses are free from CGT ?
Regards
Expert:  Sam replied 3 months ago.

HI

Yes - its for the second home as capital gains would not arise on a primary residence as any profit (gain) made would be fully exempt under private residence relief

For married couples whether shares - additional (secondary) properties or businesses - the transfer or asset/equity remains within the married unit so no gain actually is treated as arising

So yes I am saying that any transfers (what-so-ever) between spouses are free from CGT ?

Thanks

Sam

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