Types of ownership by individuals
(England and Wales only)
This is where a property is owned in one individual’s name and the income and capital gains are chargeable on that individual. Income and gains cannot be shared with a spouse or civil partner for tax purposes.
Joint ownership (Joint tenants)
This is where the whole property is owned jointly and if one of the joint owners dies then the property automatically vests with the remaining owner(s). The interest in a jointly owned property cannot be left in a will until the last survivor becomes sole owner. Because the individuals are entitled to an equal share in the whole of the income and capital gains, they are shared equally and no election can be made for a different split of income.
Common ownership (Tenants in common)
This is where effectively a proportion of the property is owned by an individual. This may be equal or it may be in different proportions. If one of the tenants dies then his/her share goes into their estate and is dealt with by the will or according to the rules of intestacy. If the property is owned in different shares and the owners are not married/civil partners then the income and gains are divided in proportion to the ownership. In the case of married couples/civil partners, the income is treated as shared equally (whatever the beneficial ownership) unless they both make a declaration confirming the actual split of income based on the beneficial ownership of the income and the property. The gain would follow the beneficial ownership.
How to save Capital Gains Tax
If one spouse owns a property in their own name, it may be an idea to transfer the property into joint names before a sale assuming that the other spouse has not already used their CGT exemption in the tax year concerned. You do have to take into account the levels of income of each partner because the rate of capital gains tax for one partner may be higher than that of the other partner. Care does need to be taken, as if this is carried out shortly before a sale, then HM Revenue and Customs may attack the transaction as invalid under anti-avoidance rules. You also need to ensure that any income received in the period after transfer of the property is declared on each spouse’s tax return which may increase the income tax paid. There would also be the costs of conveying the property into joint names.
© Thandi Nicholls Ltd 2020 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, K Nicholls FCA or S Thandi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
Do you have a question for our experts?
If there’s a property tax issue that has you puzzled or worried, get in touch. Everyone on our team loves to talk, especially when it helps people like you find peace of mind.