Transfer of property between unmarried couple

Transfer of property between unmarried couple

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An unmarried couple own a house each. His is worth £435k with a mortgage of £140k(so capital of £295k). Hers is worth £285k with no mortgage. They live together in his house and transfer both properties into joint names as joint tenants.

Am I correct in thinking that they have each bought a half share in the others house as opposed to making a gift? And if so as the capital element of each property is so similar there will not be any CGT liabilities.

Am I also correct in thinking that there are no IHT issues here?

I would appreciate any thoughts or input on this please.

Cathy Ratchford

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By User deleted
20th Oct 2006 14:47

Not that similar
It's a pretty common misconception that mortgages are a ctritical element in CGT. Not so in that, often, thay are ignored which means, in this case, that the comparitive values of the houses are £150k apart.
This couple are effectively exchanging interests and, whilst they are not connected in the CGT sense, one has to examine if this is truly a bargain at arm's length. This has a bearing on the market values to be used in the computations: yes, each is deemed to have sold a half-share and acquired another. On the assumption that the figures quoted in the query will stand up to scrutiny by, say, the Valuation Agency and that the lady will assume 50% of the mortgage, I think the deal might be accepted as an arm's length one though I have never encountered this exact situation.
Thus,man is deemed to sell his 50%share for perhaps £145k (mv of other half-share discounted) plus £70k( the assumption of half the mortgage by lady is consideration). On the other side, lady is deemed to have sold her half-share for , say, £200k being the worth of a similar share (discounted)in man's house.
I now leave Cathy to do the actual CGT calculations but have to wonder, after all this, whether each party is totally protected by PPR relief!
With regard to IHT: there are certainly issues in that one has to examine what loss, if any, there has been to elther Estate. It could be argued that lady is not making a gift as the "consideration'"for her transfer (even encumbered with part mortgage) outweighs the value of what she is losing. Man probably is making a PET but surely small enough not to worry about.

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By Exector
23rd Oct 2006 17:07

property xfer- SDLT?!
Don't overlook the possibility this may be payable- assumption of mge debt is payment as is property exchange

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