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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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We want to give our studio flat to our 21 years old daughter.

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We want to give our studio flat to our 21 years old daughter. There is no mortgage on the property. We bought it some 15 years ago and it is now worth much more however it is a 100% gift that we are making to our only offspring. Is there any transfer tax that we shall have to pay apart from the solicitor's fee?
Ewa Rakowska
Hi.I'm assuming that the property is not your main home and never has been.There will be no stamp duty to pay as there is no cash involved or a mortgage transfer.The gift will be a potentially exempt transfer which means that so long as you each live for at least seven years after making the gift, your respective shares of the gift will not be included in your respective estates for Inheritance Tax purposes. Take a look here for information on Inheritance Tax and here for information on taper relief which applies three years after a gift is made and death occurs within seven years of a gift.The gift will also be a disposal for Capital Gains Tax purposes even though you will be receiving no cash. The difference between the market value of the property and what it cost to buy will be the gain. You can claim the cost of improvements to the property. As it is jointly owned, you will each qualify for exemption for the first £11,100 of gains. Your respective shares of the net taxable gain will be charged to CGT at 18% or 28% or a combination of the two rates depending on the level of the sum of your income and the net taxable gain in the tax year of disposal. Take a look here for information on how to calculate your CGT liability. The CGT charge cannot be more than 28% of the net taxable gain.I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.
Thanks for your reply. The studio is No 14 and adjacent to our larger flat of No 15. For the last 8 years I have been residing with our daughter at No 15 while the studio has been the residence of my husband due to family affairs.
How does this situation influence the CGT liability?
A married couple can only have one main residence between them unless they are separated in circumstances which are likely to be permanent.

Take a look at the notes here for more information on what constitutes separation and here for information on CGT and the main residence.
Customer: replied 2 years ago.
Thanx. Our separation is not formal but permanent, hence the studio is my husband's main residence wchich has been documented for years in the electoral register, council tax and his driving licence. The legal ownership of both flats is in joint names.
Does it mean that only 1 of us can claim CG tax relief?( as I reside in the larger flat next door which is my main residence)
Ps how many questions can I ask for my 1- off £ 42?
Your husband would be able to claim some main residence exemption on a proportionate basis for the period he has lived in the property as described in HS283. Since it is not your main home, you won't qualify for main residence relief for your share of any paper gain.

Claiming that the studio flat is his main home will expose part of your husband's share of any on a future disposal of the flat you call your main home to CGT.

You can ask as many questions on the same topic until you understand your position and are ready to rate my answer. Questions on any other topic should be posted as new questions and if you would like me to answer them, then please mention my name in the body of the question.
Customer: replied 2 years ago.
Which authority and at which stage of the transfer process should my husband notify that the studio is his main residency?
He will do that when he discloses the gain to HMRC in a tax return. He has missed the opportunity to make an election for one of the properties to be treated as his main home as this has to be done within two years of an individual having more than one residence. As it is, the decision will be based on the facts.
Customer: replied 2 years ago.
What would you say if we carried out the transfer in 2 stages:
1. I would transfer my studio property shares to my husband, making him sole owner
2. He would then make the transfer to our daughter
His tax return have been coming to No 14 since 2004!
Question - how much time must elapse between stage 1 and stage 2?

1 It's pointless. As you are permanently separated, you have lost the no gain, no loss position when transferring assets between husband and wife. You would be deemed to have sold your share of the studio at its open market value to your husband, realising a paper gain as you would if you transferred your share directly to your daughter.

Customer: replied 2 years ago.
I understand. Which is the authority he missed to notify within the 1st 2 years of his new main residency?
Is there any other legal way to reduce the CGT in our case?
Maybe we should give up on the whole property transfer in the end?
It's the main residence election which you can read about here and here.There really isn't much you can do I'm afraid. Unless you have cash funds to settle the CGT, given that you won't receive any money if you give the property away, then it will be difficult to do in any event. I cannot tell you whether you should do it or not.
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