Have you wondered whether it would be beneficial to transfer a property you own to your spouse? There are certainly Capital Gains Tax (CGT) and Inheritance Tax (IHT) savings to be made for married couples (or civil partners) by transferring property between spouses.
Let’s take a transfer of property from husband to wife for example, if a husband transfers a rental property to his wife, the transfer is generally exempt from CGT or IHT and if his wife pays a lower tax rate, there will be less income tax to pay on the rental income. The couple will pay less capital gains tax when the property is sold too.
If you transfer a property prior to selling it, you can reduce the CGT bill by utilising both your personal allowances, effectively doubling the allowance for married couples and civil partners where the transfer is a genuine, outright gift.
Unfortunately, transfers of assets between others, such as brothers and sisters or common-law spouses, will incur CGT as the transfer is treated as a disposal for capital gain and taxed as an open market sale.
Stamp Duty pitfalls
Although property transfers between spouses are exempt from CGT, you still need to be aware of stamp duty on the transaction. If you transfer a property to your spouse there is no automatic stamp duty relief.
The good news is that stamp duty land tax is not payable on the transfer of a property to another person because stamp duty is based on ‘consideration’ which is effectively the amount paid for the property.
Even if no money is paid for the property, stamp duty land tax may still be payable if there is a mortgage attached to the property and the new owner assumes responsibility for it. The transferee (the person who assumes responsibility for the mortgage), is then liable for the stamp duty land tax.
What else should you take into account?
If you are thinking of transferring property to a spouse, you should remember that consideration includes:
- Cash payments
- Any assumption of liability to pay a mortgage
Take care if you currently benefit from principal private residence relief, ie. the transferee spouse qualified by living in the property as the principal private residence for the period of ownership, if this is not the case, this relief may be lost.
As always, we suggest that you seek specific advice about transferring property to a spouse – to make the most of your transaction or if you’re not sure about these considerations. We are happy to help you, please contact us on 01865 379272.