Capital Gains Tax Mitigation Question

Hi Chris

There is actually a very simple and perfectly legal process for this. There is no need to involve the lender at all as the entire transaction can be done on completion day.

HOWEVER, some solicitors understand conveyancing law but don't understand tax law and accountants are generally the other way around. My brother had one solicitor tell him this would be tax evasion and he could get locked up for it! Fortunately my brother has a very good accountant who corrected the solicitor and the deal was done. My brother is still a free man by the way despite declaring this on his tax return LOL

If your accountant or solicitor tell you this can't be done I can assure you it can. If they try to make a meal out of it and even mention charging you for their time to look deeper into this please see >>> http://www.property118.com/professional-adviser-introduction-request/

Remember, professional advisers will charge you hundreds of pounds an hour to investigate things like this if they feel they can get away with it. I have a whole panel of specialist advisers who have already done the work so an introduction to the right ones from me could end up saving you thousands.
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Agree with Mark. By transferring an asset into your both joint names, you can both make use of your tax-free allowance so that up to £21,200 of any gain can be tax-free.

You will pay tax on the remainder of the gain.

For example, if your gain is £50k, you will pay CGT on the excess: £28,800

Just to go back one step, you said you had £50,000 equity in the property. Equity is different from a capital gain. So have you calculated the actual capital gain less purchase and selling costs or are you simply working the £50,000 out on sale price less current outstanding mortgage?

This is a gray area, there is a law (or maybe case law) that says if you do something invented JUST to save tax then HMRC can act as if you did not do it. There is also case law saying you may act in a way to minimize the tax you pay.

You are allowed to give anything to your wife without having to pay capital gains tax, and then when she sells it, she has to pay the tax on it.

So if you give half the property to your wife, THEN LATER you both decide to sell your parts and your wife keeps the money from selling her half you are OK.

But if you tell your wife to just sign a form and all the money from the sale of her part goes to you, with her having never acted as if she owned half the property you may not be OK.

HMRC in the past have been very lazy about tax avoidance schemes, but they are now making more affort – it is anyone’s grass what they will go after next. Then there will be many years of count cases to decide if HMRC is right.

This is a case where I think there is great value in taking up Mark’s professional advisor introduction service, as if you can show that you took advice from a regulated professional and acted on it, HMRC will find it very hard to charge you penalties whatever a court case may rule about you having to pay the full tax.

(Separate taxation of married partners combined with the common belief that married partner should have everything in common, has led to lots of legal special cases.)

Reply to the comment left by "Jonathan Wilson" at "19/11/2013 - 13:49":

Hi Jonathon - good point! My 'Capital Gain' of £50k ignored the deposit amount I had in the deal, so this brings my gain down to around £27k.

Reply to the comment left by "Ian Ringrose" at "19/11/2013 - 14:05":

Thanks for the recommendation Ian. I do think this is cut and dried if it's done properly but that's not the point, treat my advice like you would a man in a pub, there's no come back. However, the professionals I can introduce are insured to provide advice so if it turns out to be wrong their Professional Indemnity Insurance is there to make good any damages.

There are other considerations too, for example, was the property ever lived in by the owner? If it was there are a whole raft of tax allowances to be used. I've seen a £100,000 capital gain become completely tax free under these circumstances. The purchase price of the property isn't the only consideration for the base cost either as some expenditure may have been capitalised, e.g. improvements made to the property as opposed to maintenance.
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Hi Chris,

You also have buying and selling costs to deduct, including most legal costs. If you have spent money doing up the property that is “capital” (e.g. adding CH if not already present) that can also be deducted.

There are also other costs like a new kitchen or mortgage fees that may be able to claimed as capital costs if you have not already offset them against rental income.

I expect that with good legal and accounting advice your capital gains tax bill will be less than the cost of the advice.

-> There are other considerations too, for example, was the property ever lived in
-> by the owner? If it was there are a whole raft of tax allowances to be used. I’ve
-> seen a £100,000 capital gain become completely tax free under these circumstances.

I had a mortgage broker get very close to wiping out half this saving for us, by telling as to put a property into joint ownership (50:50) to make it easier to a BTL mortgage. Our lawyer also did not know the problem with putting it into joint ownership. (In the end we did 99%:1% that worked for the mortgage while keeping the PPR relief on 99% of any gain.)

Reply to the comment left by "Chris Mayger" at "19/11/2013 - 14:40":

Hi Chris

The deposit is irrelevant. Your CGT liability will be based on the selling price less the original purchase price, then deduct selling costs (agent's commission, legals, EPC, etc) and purchasing costs (stamp duty, legals, etc), then deduct your tax free allowance. Your liability will be based on this final figure.

Reply to the comment left by "Jonathan Wilson" at "19/11/2013 - 16:04":

Thanks guys for all your inputs - things are much clearer now!
Chris