Three ways to pay less CGT on disposal of a property and other assets
Did you know that?
When you sell a property, you have to pay Capital Gains Tax on any “profit” or gain you make on it and, you will probably have to tell HMRC about the sale or disposal.
The requirement to tell HMRC and to pay tax applies whether you own the property, if you are a joint owner, if the property was gifted to you, and even if you inherited the property.
However what you have to pay HMRC should be reduced by
I. Deducting appropriate costs,
II. Deducting your annual, personal, Capital Gains tax Allowance, and
III. Deducting any Principle Private Residence Relief – this can reduce the tax payable to £nil.
Three ways of paying the right tax, less tax, when you “sell” your other property
Aside of the three items noted above, here are three further ways to ensure that you pay less tax when you dispose of a property:
1. Live in it as your main residence for period of time to claim an element of PPR Relief
- This way you will pay no capital gains tax on the period of residence plus a few years either side as allowed by the then current legislation
- If you have lived in the property, Legislation currently allows you to escape Capital Gains tax for periods of up to 30 months in total plus the period when you actually lived in the property
- To achieve this ideally you should live in the residence; i. at the start of your ownership, and ii. at the end of your ownership
- More information at https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-reli
Top tip 1 – Make sure you get bills sent to this address, and that you live in the property as HMRC will check electricity, gas, and telephone usage
2. Transfer part or all of the asset to your wife, husband, or civil partner under the nogain-noloss rule in TCGA92/S58 http://www.hmrc.gov.uk/manuals/cgmanual/cg22200.htm to pay less Capital Gains Tax
- To achieve this you should i. Write a letter to your wife, husband, or civil partner telling them of the gift and, ii. Complete forms AP1 and TR1 at the Land Registry
- Land registry fee should be based on the value of the share of the property being transferred – a joint name share is usually 50%
- Click here for current Land Registry fees https://www.gov.uk/guidance/land-registry-registration-services-fees
- Also complete form ID1 for each partner
Top tip 2 - Save money and do it yourself, though you will need a "professsional" to sign of on your ID1 forms
Top tip 3 - If you do it yourself then talk through your draft form with Land Registry staff – you can call them on 0300 0060411
Top tip 4 - Remember that the fees are chargeable on the value you are transferring, and not the total value of your property. This is normally assumed to be 50%. Click here to contact us for help.
Top tip 5 - Do this as early as possible. Perhaps arrange the transfer and at the same time as you remortgage or flip your mortgage to get a better rate because 1) it takes time, and, more importantly, 2) You must ask the permission of your mortgage lender who may only agree if your partners name is put on the mortgage which, of course means, costs, time, and going through a mortgage broker.
- This works because HMRC will use the Land Registry as primary evidence in deciding who the owners are and, therefore who should is liable to report and pay Capital Gains Tax on disposal
- This allows you to i. Utilise two CGT tax-free allowances (worth £1,998 les tax at 18% CGT), and ii. Possibly also remove the Capital Gain from the higher CGT rate of 28% of one of the partners to the lower 18% of the other partner, if relevant (this could be worth £thousands more)
- This principle can also apply to the sale of other assets, such as shares, however there are a number of exclusions that apply (more information on the exclusions is contained in HMRC’s note CG22210 which can be found in at http://www.hmrc.gov.uk/manuals/cgmanual/cg22210.htm)
3. You can also transfer value to people other than your spouse however, when you transfer to someone other than your spouse you will have to pay Capital Gains Tax on the capital profit above your annual CGT Allowance (if you haven’t already used your allowance for the year):
- Less or nil CGT will be payable the property is your Principal Private Residence
- If you want to be very clever transfer only that amount of the property value that results in a gain of less than or equal to your annual unused CGT allowance. That way you can transfer possibly the entire value over a number of years without paying any CGT
- Transferring to more than one person in the family will result in less, and possibly nil, CGT being paid by the family
Contact us for more help
Call us, or email us using our contact form, if you want us to help you through the tax maze
The above article contains generic information and is not advice but information to start you on your way; remember, you must take personal advice from an accountant or tax specialist that s personal to your circumstances. This article was correct at the time of going to press on 19 March 2016
Land registry forms to download
- Form TR1 - Change the register - click here for Word file
- Form AP1 - Verify identity: citizen click here for Word file
- Form ID1 - Registered title(s): whole transfer - click here for Word file