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bigduckontax, Accountant
Category: Tax
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Stamp duty question I am in a relationship (co-habitees, not

Customer Question

stamp duty question I am in a relationship (co-habitees, not civil partners or married). Last year my partner bought a house for 250K with money that I gave her. She is the sole owner on the title deeds. This is now her main home, We are both registered
on the title deeds of the property in London which is my main home. To clarify things we thought it would make sense (eg for CGT puposes) to remove my partner from the title deeds of this property. There is a mortgage but all the debt is paid off so nothing
outstanding on it, and no money would be transfered between us. The London house was originally bought for 84K and is now worth roughly 500k, Am I liable for any stamp duty if I go ahead with this because of the 250k given to buy the second property?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Stamp Duty Land Tax (SDLT) is charged on the consideration passed in a land transaction and indeed some other activities also. In this case there is no consideration s no SDLT is payable. But soft, there are more complications. You are not married to your partner thus the gift to her of 250K creates a Potentially Exempt Transfer (PET) in your Inheritance Tax (IHT) affairs. PETs run off at a taper over seven years and in the event of your decease within this period are added back to your estate and are the first to suffer IHT. If your estate is insufficient to meet the IHT on the PET the liability cascades down to the beneficiary for immediate settlement. Married couples only have one tranche of Private Residence Relief (PRR) between them, but as an unmarried pair you would each have an entitlement to PRR for your sole or main domestic residence. PRR relieves CGT at 100%. It would thus be sensible for each of you to own your own sole or main domestic residence to take advantage of your PRR entitlements. However the danger here is that the transfer of her half share to you would count as a disposal and trigger a CGT liability on 500K - 84K = 416. 416 / 2 = 208K of possible CGT liability less Annual Exempt Allowance of 11.1K leaves an exposure of say 197K which would be charged at 18% or 28% or a combination of the two rates depending on her income including the gain in the year of sale; worst case scenario is a tax bill of a tad over 55K. An owner of a second property can elect to which property they wish PRR to be applied, but this election is only available for two years after the acquisition of the second property. I am of the opinion that your proposal is one with financial consequences you might wish to avoid or defer. If you subsequently marry you are still in a quagmire as I have warned you that married couples have but one PRR entitlement between them. I am so sorry that apart from SDLT I have had to rain on your parade.
Customer: replied 2 years ago.
hi KeithYou say that:
An owner of a second property can elect to which property they wish PRR to be applied, but this election is only available for two years after the acquisition of the second property. - we are still within the 2 years from which the second property was bought so if we told HMRC that one property is my main residence and the other is hers (which is the case) then would that not solve the problem of CGT as we are each entitled to one main residence?
Expert:  bigduckontax replied 2 years ago.
Your election would be the obvious one. However, the London home was a second home for your partner and therefore on her transferring her share to you she would be liable to CGT on the gain made, the calculation of which I have explained. CGT is a thoroughly nasty tax which tends to rear its ugly head and bite when least expected. You have been well and truly caught by Benjamin Franklin's dictum that in life there are but two certainties, death and taxes.
Customer: replied 2 years ago.
HiIs it the case that she would only be liable for CGT calculated from the point at which the London property is not her main home and not from the time that the house was originally bought?
Expert:  bigduckontax replied 2 years ago.
It all depends upon which property she elects to receive PRR. Obviously one uses the one where the gain is greater. If she elects for her half share in the London house then the CGT runs only for that gain. However, that gain is pretty large. I did say that CGT was a thoroughly nasty tax. I am aware of one individual who bought a house for his son to live in whilst he was at university and put it in his own name, When it came to sell he was landed with a nearly 40K CGT bill for a dwelling in which he had never lived.