How to avoid paying tax when selling second flat (buy to let)

[New Londoner]

Hi,

My husband and I owe two properties jointly.

Unfortunatelly we put both flats in both names, so that I believe that we will need to pay taxes in the second flat if we decide to sell it...

Am I correct or is there any way around it?

Thanks

[Huw Williams]

Joint ownership may actually help you.

If you own and let out a flat then you are going to be liable to capital gains tax when you sell it anyway (on top of the tax you pay on the rental income). If you own it jointly then you will share the gain between you so there will be 2 annual capital gains exemptions (presently £7,700 per person) before any tax is payable.

Of course this may not be so good if one of you pays 40% tax and the other none at all, since there could be more tax payable overall.

And joint ownership will mean the rental income is joint too - again not so good if one of you pays tax at a higher rate than the other.

Huw Williams
enquiries@HuwWilliams.co.uk

[Nigel Lord]

New Londoner

There seems to be some confusion here. There is nothing inherently wrong in jointly owning both properties.

I suspect that you are (incorrectly) assuming that if you own one property and your husband owns the other, you will each be able to claim Principal Private Residence (PPR) relief on the property that is yours. Unfortunately, married couples may only have one PPR between them at any one time. This is one of a number of quirks in tax legislation that discriminates against married couples.

However, there are a number of tax advantages in being married, the most relevant in your circumstances being the ability of married couples to transfer property between themselves without giving rise to a chargeable gain.

You do not provide sufficient information about your circumstances to facilitate any planning advice. If you would like to elaborate (i.e. indicate the status of the two properties -residence/let etc., the periods of ownership, your long term intentions and your objectives, more apprpriate advice could be provided).

If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.

Nigel Lord
Lord Associates
Taxation & Business Consultants
102 Smarts Lane
Loughton
Essex, IG10 4BS
020 8508 1642 & 07769 931852
lordassociates@ntlworld.com