Tax implications of Adding my name to spouse's mortgage

[steve234]

Hi

My question is whether there are any negative CGT implications of adding my name to my wife's property in order to remortgage and effectively her transferring some of the property to me..when during her ownership she did rent out the property for a few years?

As background my wife has a residential property/house she bought in July 1993. She lived in it for 10 years until 2003 when we got married. She then moved in with me and let the property for 5 years until 2008. In 2008 we moved back into her house and have been living there now for 3 years. In all that time the house and mortgage has been in my wife's name.

Having gone up considerably in value we now want to remortage the property to replace a few BTL loans we have at higher rates. However my wife is now a housewife and to get a remortage would mean adding me to the deeds to ensure I am a joint owner and my income can be taken into account in the eyes of the lender. In doing this to ensure we get the best tax treatment I would set up a deed of trust to ensure the split has the property 99% in my wife's name.

Many thanks for any help and guidance you can provide.

[section 44]

While not a tax answer, if:

my income can be taken into account in the eyes of the lender

While not a tax answer, if:

is all that you are looking to achieve then I don't see why you would need to co-own the property. You could be a joint borrower, or a guarantor with your wife as sole borrower, and your wife as the sole legal owner of the property could grant the bank a legal mortgage over the property. I don't see why a bank would take issue with this, they would effectively have you on the hook with regards to repayments and they would still have a legal mortgage over the property as security.

Simples.

[steve234]

Thanks...that is a good response for the mechanics of the loan...regarding the tax aspect I thought I'd read that there were CGT implications of transferring property between spouses if they had previously been rented out ie. affecting letting allowances when finallly sold?

[section 44]

Why would your wife need to transfer part of the property to you if all you want to do is to borrow money with her?

[Incredulum]

In answer to your question, a transfer of the property will make no difference at all to lettings relief as you will inherit her history.

[maths]

As her property is now the main residence of both of you then any transfer of part of the beneficial interest to you will be treated as occurring at the date of the transfer, at a % of the original cost (to your wife ie no gain or loss) and you will also be treated for CGT purposes as if you had owned that interest from the date of the acquisition by your wife (ie any period of living in it on her part will also be treated as if you had lived in it etc).

However, any lettings relief available to her will not be available to you (as incredulum above suggests) but an extra £10,600 of exempt gain will now apply.

Whether from a CGT perspective a transfer is CGT efficient will depend upon the numbers

[Incredulum]

The s58 point is an interesting one as there is in fact a whole range of values at which the property can be transferred such that no gain or loss accrues to the disposing spouse.


Is there therefore not an argument that the receiving spouse's base cost is the disposing partner's base cost plus such letting relief as would be available at the interspousal transfer date?

s223(4) "The part of the gain, if any which (apart from this subsection) would be a chargeable gain by reason of the letting, shall be such a gain only to the extent, if any, to which it exceeds [ppr] or £40,000."

On this basis, to the extent that the gain is less than this amount, then it is not a gain. Therefore the s58 ng/nl base cost can be computed allowing for this.

Indeed, interestingly, the gain arising from PPR relief is also deemed to be "not a chargeable gain". My proposed reading of the legislation therefore gives the receiving spouse the uplift in base cost. He inherits the period of ownership history from s222(7) so the transferee is probably going to get a lower tax bill on an eventual disposal than would the transferor on his remaining half. I'm not sure this is what the legislation intends.

No doubt this post will give rise to some comment.


[I presume that the reason no LR is available to the transferee spouse is the weasel words "wholly or partly let by him during his period of ownership" - is that general practice?]

[maths]

I presume that the reason no LR is available to the transferee spouse is the weasel words "wholly or partly let by him during his period of ownership" - is that general practice?]

Effectively, yes; the artificial back-dating under s222(7)(a) does not extend to LR.

Re your other s58 issue, as an aside, would an extension of your argument not also require the annual exempt amount to be taken into account and/or capital losses?

[Incredulum]

No, absolutely not. The mechanism is quite different as the exempt amount continues to be a gain, but it is a gain that is not chargeable to capital gains tax. s3(1) "An individual shall not be chargeable to capital gains tax in respect of so much of his taxable amount for any year of assessment as does not exceed the exempt amount for the year." Whereas s222 et seq. make it not a (chargeable) gain.

Don't forget if indexation were available then the ng/nl transfer would be at indexed cost. s53(1) "If on the disposal of an asset there is an unindexed gain, an allowance ("the indexation allowance") shall be allowed against the unindexed gain so as to give the gain for the purposes of this Act."

[steve234]

Hi. thanks for piling in here and it sounds like you guys know your (complex stuff)..unfortunately along the way you lost me. Can you give me the laymans view. Are you able to illustrate by example. This must apply to a lot of people when they get married? is it so complicated or are people just not aware?