Transfer of equity CGT implications

[alex_a74]

Hi All,

We are thinking about doing a transfer of equity transaction including our property and would like to hear an advice about capital gains tax implications.

At the moment, the property is owned jointly by me and my wife.

The property was acquired by my wife and her ex-husband in June 2001 for £121k

She lived in the property until December 2004, at which point a transfer of equity from her ex-husband to me was performed, with property being evaluated at £200k at the time.

From that point onwards, the property has been let out - and a few years ago, we have acquired another property, which makes the original one subject to a capital gains tax in case of a sale or equity transfer.

At this point, we are planning to add my parents to the title.

The property is currently valued at £300k, and they are going to pay us £150k for essentially half of the property.

What are the capital gains implications for us in this scenario ?

My calculations will show:

1) Me selling quarter of the property, which value has risen from £50k to £75k, which results in capital gains tax of £3,836.00

2) My wife selling quarter of the property, which value has risen from £30k to £75k, over 16 years, from which she was living in the property for 3 years, resulting in capital gains tax of £6,916.00

Is that about right or am I missing something ?

[AGoodman]

If you start with your acquisition values, you appear to have paid £50k for your half share and are selling for £75k so a gain of £25k. After deduction of your annual allowance, that is a gain of £13,900. The tax will depend on whether you are paying basic rate (18%) or higher rate (28%). You have used 28%.

Your wife would make a gain of £45k, reducing to £36.6 after 3 years PPR relief and £25.5k after her annual allowance. Again tax depends on her marginal rate.

Points you should consider are whether there are any transaction fees you and/or your wife can add to the acquisition value (probably solicitors fees), any capital expenditure (ditto) and check that you have included the free 18 month period when calculating the 3 year period of occupancy. If she was actually in occupancy for 3 years then 4.5 years should be available.

AG