A case study was recently submitted to TaxInsider, which investigated how beneficial it may be to transfer an interest in investment property to a spouse or civil partner before the sale of the property.

The current system as it stands, affords some tax breaks to married couples and civil partners, and dependant on the circumstances, this may be leveraged to lessen the tax bill on the sale of the property. The case study delves in to the possible opportunities to save on tax.

In this case study, there are two people in question, Martin and his wife Catherine, and one property;

Martin: Additional rate taxpayer.

Catherine: No income.

Property:

  • Original purchase cost: £200,000
  • Current Sell price: £350,000
  • Outstanding Mortgage: £100,000
  • Cost of Sale: £5,000

There are 2 ways in which we can consider the sale of this property, we shall start with the first and most common scenario;

Scenario 1: Martin sole owner of property.

As established earlier Martin is an additional rate taxpayer, meaning in the current 2018/19 tax year, he is liable to pay 28% CGT, and the current exemption threshold is £11.700.

This means that when totaling the CGT from this sale, you would use the formula as follows;

 

 

 

 

 

 

In this scenario the total CGT required to be paid is $37,324.

Scenario 2: Split ownership with Catherine

Couples with marital rights can transfer assets between each other at such a value that it gives rise to neither profit nor loss, therefore it can easily be done in the case of this scenario.

Catherine not working and having no income has not used here annual exemption amount, and resides in the basic rate band for CGT, therefore when transferring 50% of the property into Catherines name, you can take advantage of double the exemption amount.

Therefore the CGT Calcuation will go as such:

 

 

 

 

 

As you can see the new payable amount is £30,598, which is a saving of £6,726.

This is just one of the ways that you can leverage the rights granted to you as a married couple or civil partners, in order to reduce the amount of tax chargable to you.