CGT when transfer property to nonresident spouse

[bumoo]

Hello forum,

I wanted to ask a question about a fairly unusual situation. My husband and I bought a flat in Cambridge jointly in 2013 and we transferred it into my name alone after 6 April 2015). For the past year we've letting out the flat. At that time he became non UK resident+non tax resident while I am a UK tax resident in the upper band, so paying a lot of tax on the rental income.

I'm thinking it might be best to transfer the flat either fully or partially to him to reduce income tax but am worried about eventual CGT. My questions are, if I transferred the property to his name and he eventually sells the flat:
-- would he now acquire the property with a value of the price we paid for it originally? as a non resident would he pay tax only on the post 5 April 2015 value / would he be allowed to rebase ?
-- would he be able to claim residence relief for the time he and I were living there? Here it seems important that I would be transferring it to him at a time when it is let and clearly not our main or only home.
-- Would his date of acquisition still be 2013 or would it be now?
-- would he receive any other relief? I believe I've red that non residents get residence relief for any year in which they or the spouse lives in the property 90 days, in which case I could possibly try to arrange this?
-- OR should I wait until a time when I myself become non resident, which is likely to happen?

Thanks very much for your help

[maths]

When husband transferred his interest to you was the property your sole/main residence or had you both moved out by that time?

[bumoo]

THanks, it was a main residence of both (child living there).

[AdamS93]

This is a hornets nest.

If you transfer the flat to your non-resident husband now it will be a nil gain/nil loss transfer. However, your husband would've acquired in say today, which is after the 5th April 2015. Therefore his base cost for CGT will equal the current base cost for yourself. Your husband will lose any benefit of PPR and letting relief that you may be able to claim.

Also, the letting income will become subject to the non-resident landlord scheme which involves a few hoops that will need jumping through.

You are blurring the lines between before the transfer and after the transfer. It is treated as a sale like any other sale, just at sales proceeds which give nil gain/nil loss transfer.

Seek professional advice before you shoot yourself in the foot. There are numerous anti-avoidance provisions around this as well especially if you are planning on returning to the UK in the future.

[maths]

The transfer of H's 50% to you (W) post 6 .4.15 is at no loss/no gain; W acquires H's 50% at original base cost. However, as at this time the property was a main residence W inherits H's past ie if part of H's ownership was whilst property a amain residence (which it was) and partly it was let out by H then H would have been entitled to private residence relief and lettings relief. If there fore W keeps the 100% and sells W will be entitled to both these reliefs when calculating any CGT charge.

If W now transfers, say, 100% back to H (a non-resident) H acquires W's 100% at original base cost but both private residence and lettings relief will be lost on a sale by H. H will have acquired the 100% from W post 6.4.15 and hence rebasing will not apply. In calculating H's gain on sale the retrospective method of computation will need to be adopted.

Conclusion therefore seems to be for CGT purposes W should not transfer 100% (or any %) to H.

As AdamS93 rightly comments a bit of a dog's breakfast.

[someone]

Conclusion therefore seems to be for CGT purposes W should not transfer 100% (or any %) to H.

As long as W keeps a share, H can transfer back to W before sale. So 99% to H might make sense.

PRR is a binary thing. So long as you have held it, you get it on disposal.

[bumoo]

Thanks for your replies.

Happy to confirm your suspicions that my international life is a dog's breakfast AND a hornet's nest!!

This is interesting, though confusing... not something you want to play around with and discover you were wrong about at the last minute. If I transfer 99% to H and he transfers it all back to me just before the sale I would take my PPR relief and letting relief, and his as well?

Also, another question -- I moved out of the house *almost* 2 years ago. But I never officially registered it as my main residence with HMRC. Would it make my life easier if I called them and did this now, before (what I think is the deadline?) 2 years after leaving the residence? Would they let me self-declare that I had been there from x date to x date?

[Lambs]

B,

You do not say if you have another residence, as well as the flat in question. The power to nominate a residence applies only when there is a choice of RESIDENCES, not just of properties. You will presumably have an alternative residence now, but that flat appears not currently to be available as a residence (as it is being let). However, you may well have had a choice of residences at some point since the flat's acquisition and your period of ownership started, in which case you can elect within 2 years of that particular choice of residences initially becoming available, (i.e., now) and there is no need for it to be your residence at the point the nomination/election is submitted to HMRC. You can self-declare, basically because it is Self-Assessment: you claim the relief and HMRC can then check its validity.

Nominating a residence is useful, and recommended. But it is not necessarily "fatal" if there is not a nomination / you are out of time if, on the facts, it was your MAIN residence (and if you lived there / raised your family there for a year, it might well have been anyway, as other available residences might effectively have been secondary, depending on the quality of occupation).

I should add that we do not know your / your spouse's domicile or tax residence history, (aside perhaps from current), or whether there are other countries that might have competing claims to tax to be resolved by resorting to the relevant Double Tax Treaty. If the gain is significant, it would be better to seek the advice of a competent professional before making a nomination / transfer / sale. For example, you may want to nominate back to a more valuable residence fairly quickly. And, if you bought the flat five years ago, I would recommend you make absolutely sure that you are in a position now to make an election with a 2-year shelf life. UK CGT (and main residence relief) can apply to foreign properties as well. And of course, SDLT MAY be chargeable on any transfer of interest if the property is subject to a mortgage.

Food for thought - but I wouldn't want to make a meal of something that the dog's had first dibs on, or hornets lived in...

I thank you.

Regards all,

Lambs