Capital Gearing Share Discussion Threads

[nomunnofun] 20/6/2011 09:16

The gift of half of the interest in the property in July 2010 will, in my view, be challenged by HMRC as the sole reason for such a transfer was to mitigate tax. I have had a number of these cases over the years with one currently ongoing. Quite simply, this transfer can only have taken place while there was no intention to sell at that time or, at least, you can prove this to be the case. Ideally, I would have waited at least one year between the two events with formal valuations being obtained at the time of the gift.

[smurfy2001] 19/6/2011 17:59

cheers chaps

[micos] 19/6/2011 13:34

Gengulphus,
I am impressed by the detail of your reply and much in your debt for the information. I'm having difficulty printing it off for a better understanding but thank you very much , meantime.
Micos

[gengulphus] 18/6/2011 15:04

I should add that the transfer from your wife's sole ownership to joint ownership by you and your wife is subject to the interspouse transfer "no gain / no loss" rule. That is, regardless of how much (if anything) you paid your wife for a half-share in the house, you are treated as having paid her a half-share of all her allowable expenditure to that point. As a result:

* Her gain or loss at when she disposed of a half-share in the house at the time of the transfer was the half-share of her expenditure that you are treated as having paid her minus the half-share of her expenditure which she paid (or is treated as having paid as a result of the earlier application of the same rule when the house was transferred into her sole name). Which comes to zero - i.e. there is no CGT due as a direct result of the interspouse transfer (which means among other things that there is no need to value the house at the time of the interspouse transfer).

* When the house is finally sold, each of you and your wife have a gain equal to a half-share of the net disposal proceeds minus a half-share of your wife's allowable expenditure at the time of the interspouse transfer. I.e. you and your wife each end up being assessed on half of the overall gain, regardless of the house's value at the time of the interspouse transfer (so there is no need to value the house at the time of the interspouse transfer for this purpose either).

There is no similar "no gain / no loss" rule for parent / child transfers, so for any transfer in which your daughter was involved as a beneficial owner (if there are any, which as I've indicated in my last post, I doubt) it is necessary to value the house at the time of the transfer.

Gengulphus

[gengulphus] 18/6/2011 14:38

micos,

Sorry, I don't understand in what sense the property was ever your daughter's for CGT purposes. From what you say about her not supporting herself, she presumably didn't put any money into it - is that correct? And you say that it was later transferred to your wife for nil consideration, which implies that your daughter didn't get any money out of it either...

I think the taxman's take on those facts is likely to be that while your daughter was the legal co-owner of the property for six years, you and/or your wife were always the beneficial owners. Your daughter was merely taking care of a part of it for you, basically as your trustee.

Since CGT is assessed on beneficial ownership, not legal ownership, that would imply that dealing with the CGT is purely a matter of your and your wife's tax affairs, not your daughter's. I'm not saying that that's definitely the case, by the way - just that it seems to me to be the most likely view the taxman would take, and that you'd be well advised to think about how (if at all) you can argue against that view.

The other aspect is that given that it has never been you and your wife's only or main residence while you've owned it, you and your wife cannot claim private residence relief on it. Your daughter can, if she has to account for CGT on it at all, but as I've indicated above, I doubt that she does.

So I'm afraid that on the facts as I understand them, I doubt that private residence relief comes into the CGT calculation on the house at all. Sorry!

If for some reason the taxman does accept that your daughter had beneficial ownership of her third of the house for the six-year period that she was the legal co-owner, then the CGT situation is that she would have been responsible for one third of the gain over those six years (*) and would not have to pay CGT on it because she gets private residence relief on that house. You and your wife would be responsible for the remaining two thirds of the gain over those six years and all the gain since, and still would not get private residence relief on any of it.

(*) Which would be calculated on market value at the end of those six years (since the transfer was to a 'connected person') and probably market value at the start of them as well (though that might depend on the exact details of how the house was bought).

Gengulphus

[micos] 18/6/2011 13:42

Miata,
Thank you for your help. Our daughter was at university during her occupancy of the flat and certainly not supporting herself.

[miata] 18/6/2011 12:53

Then, as stated in 6141 your daughters one third ownership of the house from 1996 to 2002 may qualify for PPR for that period, the remaining two thirds will not. I am assuming she would not qualify as a dependent relative (eg mentally ill, physically disabled or chronically sick and unable to support herself by working).

[micos] 18/6/2011 12:25

Miata,
The property was officially transferred to my wife from me and our daughter in 2002 at a valuation of 60k but for no consideration. Half of the interest in the property was then gifted to me in July 2010 prior to the sale of the property in October 2010. Both transactions were carried out by our solicitor and officially notified to the authorities.

[micos] 18/6/2011 12:19

Investoree, that sounds painful. I do recall correspondence at the time notifying HMRC that the flat was solely in my wife's name and that she would account for the tax on the income. i hope that will suffice.

[miata] 18/6/2011 12:15

Okay so we have cleared out the possibility of final years relief.
Lets look at ownership. Your 8/14ths implies that ownership was not transferred - you are treating it as having owned it for 14 years. If you gifted it you need to get the market valuation at transfer.

So for the first six years, one third of the gain from 1996 cost to 2002 market value might qualify for private residence relief.

[investoree] 18/6/2011 11:49

micos Did you ever made a written declaration to the HMRC that the rental income for the property was to be solely for the benefit of your wife. Myself and my partner have jointly owned three buy to let flats for many years during which time I have never received any of the rental income or any other financial benefit from these flats. Despite my other half declaring all of the income on her self assessment tax return each year we have now become involved in a dispute with HMRC who claim that the income should have been split equally as we hadn't notified them of our arrangement/intentions. The sole reason for this investment vehicle being used was to create an income for my other half (she was unable to work and had no income of her own) whilst ensuring that I remained a basic rate tax-payer and solely benefited from half the CGT when the properties were eventually sold.

[micos] 18/6/2011 11:24

Hello, Miata,
No, it was never our only or main home during the time that we owned it, only our daughter had it as her only home so are we entitled to the six year deduction for her occupancy?

[miata] 18/6/2011 10:07

My wife and I lived in the property occasionally over the fourteen year ownership but we never elected for the property to be our principal residence.

The question (for final three years relief) is, was it "your only or main home at some point during the time that you've owned it".

[micos] 18/6/2011 08:54

I have a property CGT question. My wife, daughter and I bought a property in 1996 which was our daughter's sole residence for the next six years. In 2002 the property was transferred to my wife's name alone, for no consideration, as the property was to be let and it simplified matters for tax return purposes to have the income in one name. All income was declared on my wife's tax returns. Prior to selling the property last year, it was transferred to the names of my wife and myself to maximise the annual CGT allowance on the disposal. My wife and I lived in the property occasionally over the fourteen year ownership but we never elected for the property to be our principal residence. Are we now entitled to discount the six years when our daughter occupied the property thus reducing our CGT liability to 18% of 8/14 of the gain and are there any other reliefs available to us apart from the disastrous share dealing losses we have incurred and declared over the years? I would be grateful for any advice.

[gengulphus] 17/6/2011 23:17

http://www.advfn.com/cmn/fbb/thread.php3?id=3661542&from=18

Yes, a good read.

Do watch out though for the fact that it was written 5 years ago and some things have changed since. For example, the introduction of transferrable IHT allowances (aka "nil rate bands") has largely got rid of any advantages from setting up nil rate band discretionary trusts.

And I would take what it has to say about VCTs and EISes with a considerable pinch of salt. My experience with a fair-sized collection of VCTs held for getting on for a decade now is not good - what I've saved on tax (on generally more generous terms than VCTs get these days), I've at least largely lost to management charges and poor investment performance. (My experience with EISes is worse - though to be fair, I've invested in so few of them that my experience of them is unlikely to be representative.)

Gengulphus

[miata] 17/6/2011 16:38

6133, This might be worth a read

[boozey] 17/6/2011 10:23

Gengulphus, Miata, once again many thanks for your support. You doing a fantastic job on this thread at providing value to investors on this minefield of a topic.

[gengulphus] 17/6/2011 10:12

Boozey,

To add to MIATA's reply: note though that the extra time for people who didn't have a tax return to complete is a transitional arrangement - it will come down to four years for everyone. I.e. that part of his reply should be OK for your current situation, but don't rely on it remaining so indefinitely into the future.

If you'd like confirmation of the situation and precise details of the deadlines from HMRC, see .

Gengulphus

[gengulphus] 17/6/2011 10:05

I realise that both of you had given(differing) opinions. I just wondered if you agreed on my interpreatation of it SOLELY based on the reply given by Selftrade.

Of course I do - they've given their opinion quite plainly.

On the other hand, I would consider basing your decision SOLELY on Selftrade's reply to be a bad move. Assuming you have an execution-only account with them, they are not supposed to give you financial advice, so you cannot treat what they've told you as advice, merely one of the number of opinions you've been given.

You have the responsibility to ensure that your tax return is "complete and correct to the best of my knowledge and belief". Seeking a number of opinions about an issue you know is difficult and just going with the one that seems most favourable to you is not exactly a good way of going about that - were I a tax inspector and to get to know that a taxpayer had adopted that approach, I would at the very least regard them as rather reckless in their approach to getting their tax return right, and quite possibly as negligent about it...

Basically, you've received a number of opinions about the matter and they differ from each other. I'm not saying my opinion is necessarily right, but I do think you ought to take some steps to resolve which of the opinions you've obtained is correct. For example, have you phoned your tax office to ask them?

Gengulphus