CGT - using 2 annual allowances

Transfer of property

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Mr X and Miss Y (formerly Mrs X up until 5 years ago) own a property each which they held when they were married. Miss Y would like to buy out Mr X from the property he owns but can only afford to do this if the property she currently owns referred to above is sold. Neither of them have lived in the properties in question.

They are no longer connected for tax purposes as they divorced 5 years ago. 

Miss Y is a HR tax payer and has no other capital gains in this tax year. 

Mr X is a BR tax payer and has no other capital gains in this tax year

Could Miss Y gift 50% of the property to Mr X now and then they both sell the property in this tax year? The onward sale would mean they can utilise 2 x AE's and the fact that Mr X is a BR tax payer. 

There is no mortgage on the property so I understand the gift would not trigger any SDLT

The theory behind the above is that obtaining a low tax on the sale of the property owned by Miss Y initially helps her afford to buy out Mr X of the other property so his share will be a payment on account towards this, until he sells his share in the following tax year to Miss Y. 

I am sure I am missing something here, but any help would be much appreciated. In particular, although they are not connected does the 50% transfer create a capital gain in the first place despite that in theory it is a gift?

 

Replies (4)

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By bettybobbymeggie
20th Jul 2021 20:22

The gift is a disposal for CGT purposes, the 'proceeds' of which is the asset's market value at the time the gift is made.

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By Duggimon
21st Jul 2021 09:03

They don't have to be connected for the gift to trigger the charge to CGT, it just has to be a transfer below market value.

That is far from the most glaring problem with the scheme, but since it's scuppered right off the bat I don't think there's any need to unpick the rest of what's going on here.

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By SA2016
21st Jul 2021 09:59

Thanks both, so in relation to a divorce case for example when the individuals are still treated as connected for tax purposes in the following tax year, what is the relevance of this point if MV has to always be used for a gift of an asset?

So if one friend wants to gift an asset (which would usually trigger CGT) to another friend (lucky friend), CGT would still be due although no consideration paid?

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Replying to SA2016:
By SteveHa
21st Jul 2021 13:09

Gifts between spouses (including in the year of separation - not divorce) are exempt. Otherwise, all gifts of property below MV are MV transactions for CGT purposes.

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