Using capital gains allowance

[rks2018]

Am I right in thinking if one has a jointly owned property that one can gradually pass over equity each year without paying cgt each year? If so how is this achievable please? Thanks for any info

[jerome.lane]

This could be caught by anti avoidance under the “Ramsay principal” where a series of transactions are set aside to look at the whole as though they had happened on the same day. Any reduction given for minority interests would then become moot possibly resulting in unexpected CGT. Piecemeal transfers at open market value would usually take a long time to effect for any great value and the process could be cumbersome and only cost effective if done by declarations of Trust. Depending on the circumstances and numbers involved, there could be better options such as considering a partnership or just gifting growth value which would have the same effect over time.

[rks2018]

OK thanks Jerome not even worth considering

[bd6759]

Are you aware of any case where HMRC have successfully challenged a piecemeal disposal on Ramsey grounds? If you are right, gifting growth would fall foul of the same principle (even if gifting growth could be achieved ... that sounds like something that could easily be challenged).

I see nothing wrong with the original proposal.

[jerome.lane]

I didn’t say it could not be done. I just highlighted the risks (which do exists) and cumbersome admin elements of making gifts equal to CGT annual exemptions. I’m sure HMRC have better things to do than challenge these kind of arrangements but the anti avoidance provisions do exist and could apply. Property is often high value so giving away in dribs and drabs is rarely efficient. Gifting growth is frequently implemented in loan trusts and freezer share arrangements - there isn’t necessarily an entirely tax driven motive to these arrangements whereas the OP’s aim is solely to avoid CGT on an intended disposal.

[rks2018]

Hi, one other question please, currently have 50/50ownership with my sister, if I were to change this to 99/1 to my share, am I right in thinking we don't have to pay cgt until we sell? Although I'm higher rate tax payer I would still benefit by 10% on SA as I'm currently now paying excess earnings on my paye to pension to bring down to 50k.
If I were to do this, when we come to sell how would the calculation of cgt be carried out? Thanks

[jerome.lane]

A CGT liability would arise at time of change in equity and again on a future sale. It is possible to share income in a way that doesn’t follow the equity.

[maths]

It is highly unlikely that Ramsay would be applied to such a series of transactions. Whilst GAAR and Ramsay are separate approaches to tax avoidance, some of the examples provided for both CGT and IHT in the GAAR Guidance Notes which are not found abusive or unacceptable involve use being made of existing legislative reliefs/exemptions.

Acceptable examples include taking advantage of inter-spouse death-bed gifts followed by death; main residence relief elections; and deferral of unconditional contract timing.

CGT legislation provides for part disposals of the whole and annual exemptions.

Whether the practicalities of a whole series of part disposals over time is worth the effort of saving some CGT may be questionable.

Apart from asserting that Ramsay "could" apply I would be interested to know where any authoritative source has made comments re the possible application of Ramsay.

[maths]

Without re-checking, I suspect that TCGA 1992 s 19 may apply in any event?

[jerome.lane]

Without re-checking, I suspect that TCGA 1992 s 19 may apply in any event?

That's what I suspected too although s.19 seems to apply more in examples involving sets of chairs worth £20 each but £000's as a set! Safe to say though that piecemeal annual property disposals are not the kind of arrangements HMRC view as commercial.