CGT return on spousal transfer

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A potential client (Mr B) has contacted me requesting help for his 2015/16 tax return, particularly regarding a capital gain on disposal of property.

I've yet to meet Mr B but he has mentioned that he transferred a half share of a property of his to Mrs B immediately before the disposal. I understand that HMRC may treat the transfer as a tax avoidance sham and tax the gain entirely on Mr B, but the question is whether it is correct to go straight to that step and ignore the transfer in his tax return, or apportion the gain and merely mention the facts of the spousal transfer in the tax return.

As an aside, Mrs B wouldn't be eligible for PPR as they weren't living in the property at the time of transfer.

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By Accountant A
24th Jan 2017 12:17

Quote:

I understand that HMRC may treat the transfer as a tax avoidance sham

Who told you that? I would have thought if the relevant formalities were completed then the transfer is effective.

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paddle steamer
By DJKL
24th Jan 2017 12:37

But did he previously, at any time, live in the property as his PPR?

If he did then HMRC might be more than happy to accept the transfer before sale as the tax payable may well have increased given possible impact on PPR relief and letting relief.

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By njvest
24th Jan 2017 12:48

He would be eligible for PPR on about 1/3rd of the gain, and then I assume lettings relief on most of the remainder (to be confirmed).

But the main question is on the tax avoidance part - I've read on a few websites that HMRC do target these types of transactions (Ramsey principle, Furness v Dawson) but not seen it anywhere official.

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Portia profile image
By Portia Nina Levin
24th Jan 2017 13:04

Your client is a moron.

As you note, by transferring half of the property to his wife immediately before sale (and at a time when the couple were not occupying it as their main residence) he has lost one-half of his PPR and lettings relief.

There is no reason why the transfer to the wife, if it actually happened, should not be accepted as perfectly legitimate planning. HMRC as good as said as much on a similar issue considered in the examples in the guidance to the GAAR.

What your client needs is decent advice from somebody with some actual gonads, so that he stops taking it from the man down the pub.

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Replying to Portia Nina Levin:
paddle steamer
By DJKL
24th Jan 2017 13:23

Re the letting relief surely we do not know what he has lost, surely depends on the numbers.

If PPR relief was worth £100,000 and is now £50,000 he has not lost the letting relief, he still gets £40,000.However if PPR relief now reduced below £40,000 then yes.

However I do agree he/his adviser at the time were morons.

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Replying to DJKL:
Portia profile image
By Portia Nina Levin
24th Jan 2017 13:56

I agree that the possibility exists that none of the lettings relief, or possibly not as much as half, has been lost.

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Replying to Portia Nina Levin:
paddle steamer
By DJKL
24th Jan 2017 20:07

Reading again the OP we do not even know if letting relief is on point as no mention of letting, it may have been a second home post it being his PPR.

Still quite likely a stupid transfer given lost PPR relief quite likely to exceed benefit of additional annual allowance.

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