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  • Buy-to-Let

    Capital gains: tax efficient sale of property

    Hi

    I would be grateful for some advice on selling my rental property in the most tax free way possible.

    I bought the property for £73000 and hope to sell it for £115,000

    Minus agent and solicitor fees I would expect a pre tax profit of around £40,000.

    The main issue is I am a higher rate tax payer so my understanding is I will need to pay tax of 28% of £28,300 (£40,000 - £11,700). This would be £7,924.

    Can I add my wife to the deeds or do a ‘declaration of trust’ so I can use her capital allowance. What would the cost be of doing this? Adding my wife and using her capital gains allowance would bring the tax down to £4648. Are my figures correct?

    Are there any other ways of reducing the tax liability.

    Finally can rollover relief be an option as I may buy another property in the near future with the proceeds.

    Thank you

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    Do you have a mortgage on the property?

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    Yes you can, but best do it before you market the property.

    You cannot roll the gain over into another property purchase.

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA

    Hi,

    I am not sure you can add your wife.

    I was trying to do the same thing, as having a mortgage, I called the bank and asked them to add my wife's name. They said that my wife will have to pay the extra 3% stamp duty even the total mortgage amount is less than the threshold.

    I said it is not correct, but they consulted their adviser and insisted it was correct.

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    Not true

    I did it last year saved 10k

    You can do it right up to exchange the link is on property 118

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    The Mortgage Lender was correct.  Whilst there isn't SDLT on the transfer of a property between husband and wife however there is SDLT on the tranfer of a mortgage.  The trick is to transfer so much of the property from the one spouse to the other as keeps the percentage of the mortgage transfered below the £40k nil rate SDLT level.  If you do a Deed of Trust transfer then that needs to be advised to HMRC.to HMRC using Form 17 for it to be valid. Accordingly you may prefer to get the deed changed to a Tenants In Common ownership through a Solicitor so you can allocate less than 50% to your wife to keep under the £40k mortgage limit.

    Regards Nigel

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    form 17 only required for income tax not capital gains tax

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA


    Agreed but the income follows the split of Capital (and vice versa) it is only in extreme cases that this is not the case.  Therefore form 17 is still required otherwise HMRC could contend that the capital split is not valid because they have not been notified of the correct future income split.  HMRC are becoming far more pedantic about such matters an winnng cases over whether the evidence supports the reality.

    Regards Nigel


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    disagree cgt goes on beneficial entitlement to proceeds

    my property owned 99.1 income default split of 50.50 used so no form 17 cgt would still be split 99.1

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA


    In that case I would suggest you look at HMRC's manual PIM1030 which states;

    However, where the joint owners are husband and wife, or civil partners, profits and losses are treated as arising to them in equal shares unless:

    • both entitlement to the income and the property are in unequal shares, and

    • both spouses, or civil partners, must inform HMRC that their share of profits and losses is to match the share each holds in the property.

    So we are back to the issue of failing to advise HMRC of the change in income and property shares.  Plus as stated by HMRC the income share must follow the share held in the property.  Accordingly fail to tell HMRC and it doesn't work for those who are Married or in a Civil Partners.  Plus HMRC have discovery to fall back on which gives them an unlimited time to find it.


    I like to use the rules to the taxpayers advantage but I dislike leaving doors open for HMRC to hit the taxpayer with penalties and interest for failing to follow the most basic of rules.


    Regards Nigel 


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    this hmrc guidance relates to income tax not capital gains tax so my point stands

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA