A question for PLM77 on CGT

[Mr Freefall]

Hi Sherena, I have a CGT question.

I have two flats, which are buy-to-let. Had them five years now and looking to keep them for a min of 5 more years to get the full taper relief.

I want to make sure I have my tax planning in-line should I desire to sell them at some point.

Now, I will have in the region of £66k Gain on each flat IF I were to sell them in 5 years. This is based on today sale price, plus a gain of say 3.5% each for the next for 5 years.

My £66k is after allowing expenditure for purchase expenses, and sale expenses etc so I am looking of ways to minimise my CGT going foreword.

My details are higher rate taxpayer, wife, and 2-year-old child. Wife is higher rate taxpayer when she is full time, and £5k under the threshold if she is working part time (which she is while out child grows up). We have our own house, mortgaged, in joint names.

So my calcs are;-

CGT after expense £66000

Taper relief @40% -£26400

My personal relief -£ 9200

Gain = £30400.

My questions are, taking the above into account and then next 5 years are of course variable…

Q1; To get my wife as shared ownership of the property, and claim her personal relief, how do to do this? Forms to fill etc, people to notify etc. The mortgages on BTL properties are in my name only.

Q2. Say for some reason one, or both of the flats were to be come vacant in the next 5 years . Could I (even thought we have our own property), move into one of these flats for say 6 months, and then become eligible for private letting relief, and primary residence relief (for the last 3 years of ownership). What’s are the general guidelines that the Revenue are willing to accept so this relief is claimable.

Sorry for the long first post, and thanks for your response in advance, but I am really looking to make sure I am covered to pay minimal of even better zero CGT, as the purpose of these investments was either clear our own mortgage down in 5 –6 years from now, or, provide a property(s) for our child or even children if we have more, say in 20 years from now.

Many thanks

Mr F

[plym77]

Hi Mr F

Apologies for the delay, I have been away for a few days.

With regard to your query, the easiest way to amend the ownership of a property between you and your wife would be to have a Declaration of Trust drawn up by a solicitor. A Declaration of Trust amends the underlying Beneficial Ownership of an asset, therefore you would still hold the property yourself, but the underlying beneficial ownership would be held x:x between you and your wife. This would avoid the need to go to Land Registry and it is also my understanding that you would not need to inform the mortgage lender as they would still have call on the whole asset. This would be the most basic way to be able to utilise your wife's CGT annual exemption on sale, thus saving higher rate tax of £3,680, based on today's annual exemption.

For PPR, the key is 'quality of residence' rather than quantity. You could not simply elect a property which is vacant if you have no intention of actually living there. If however you do live there for a little while (and you would need quality - ie. liveable standard of furniture and furnishings, paying utilities etc), then you could temporarily elect the property as your PPR for a period of say one week, and then vary the election back to your man home. The BTL property would then have one week actual PPR, and the last three years of ownership as deemed PPR. Additionally, as the property is rented but has at some point been a PPR, then you will be entitled to claim lettings relief, which is worth up to £40k per owner (depending on the figures involved - it is not simply £40k per person - various factors need to be considered in the calculation) - so this may also be a good reason to consider the involvement of your wife.

If you wish to include your wife for CGT purposes only then you only need to ensure that the Declaration of Trust is in place prior to exchange to sell. If it is put into place before this then rental income would be divisable between you either 50:50 (if no form 17 submitted to HMRC to follow actual benefiicial ownership split) or in the split as per the Declaration of Trust (if form 17 submitted to HMRC - available for download from HMRC website).

However, depending on the figures involved it could be possible to further mitigate or even eliminate any potential CGT payable. Given that you are not looking to sell in the very near future you are in an ideal position to consider forward planning which could substantially reduce the CGT that could be payable. The savings available would depend on your individual circumstances and the figures involved. If you would like to consider specific advice in this area, please do feel free to email me on sherena.glanton@horwath.co.uk and I would be happy to discuss this further with you.

In the meantime, I hope the above information helps to clarify a couple of matters for you. I would point out that this is general advice, and that before you make any decisions you should consider advice specific to your circumstances.

Kind regards

Sherena Glanton

Chartered Tax Adviser