Information on offshore tax, emigration, overseas property and capital gains taxInformation on offshore tax, emigration, overseas property and capital gains tax
HomeNon UK DomiciliariesFree Tax Help2 Tax Experts Online!Online Tax ToolsPractitioner ZoneUK Tax BlogSearch WebsiteJoin TodayMember Area
Not a member? Join today for free tax planning
 most popular
Free Tax Books
Amazon.co.uk Books
Our Latest Articles
Our Latest Q&A's
Members Downloads
Practitioner Zone
Online Tax Calculators
Free Offshore Tax Book
Join Today - Immediate Access!
Tax Coaching Club
 Our Tax Experts
Benefits of Membership
Our Experts
 Tax Help
Free Tax Help
Free Tax Return Help
Latest Tax Q&A's
Gold Members Resources
 Tax Planning
Capital Gains Tax
Corporation Tax
Income Tax
Inheritance Tax
Stamp Duty
 Non UK Domicile Tax Planning
Non UK Domiciliaries
Non Dom Tax Q&A's
 Non Resident Tax Planning
Non UK Residents
Non-Resident Tax Book
Non Resident Tax Q&A's
Statutory Residence Test
 Company Tax Planning
Corporation Tax Articles
Corporation Tax Q&A's
Company Tax Calculators
 Offshore Tax Planning
Offshore Tax Planning
Double Tax Treaties
Emigration
Tax Havens
Working Overseas
 Tax Planning Questions and Answers
Capital Gains Tax Q&A
Corporation Tax Q&A
Income Tax Q&A
Non Domicile Tax Q&A
Non Resident Tax Q&A
Inheritance Tax Q&A
 Tax Planning With Offshore Companies
Offshore Companies
Offshore Companies Q&A
Free Offshore Tax Guides
Form an Offshore Co.
ATED for Companies
 Property Tax Planning
Property Investment
Overseas Property Tax
Private Residence Relief
 Other Tax Planning
60% Effective Tax Rate
Entrepreneurs Relief
Latest Articles
LLP Articles & Q&A
Old Articles
Rich/Famous Tax Planning
 Your Membership
Member Profiles
credit cards accepted

Recent Tax Q&A's

To view more tax Q&A's visit the Archive Directory

• Non Domiciles - Royalty Income
• Settlor interested trust - resident but non-dom
• Becoming UK Non Resident
• Sale of refurbished investment properties
• non resident landlord scheme
• Interest Balance on Mixed accounts as of 5/4/08
• P85 and UK/NZ Residency
• How to claim double tax relief on UK pensions
• capital gains tax and non-dom
• Remittance basis, bed and breakfast
• Personal allowance for non residents after 2010
• UK Dividends collected in a Cypriot Company
• Non-dom £30,000 charge
• Cyprus or North Cyprus
• tax implications on inheriting half a house
Search Tax Q&A Directory









home | Old Articles | How To Avoid CGT In 2012

Beneficial ownership, receiving a share of the proceeds and reducing CGT

When looking at the capital gains tax position on the disposal of property, the beneficial interest can have a significant impact.

CGT follows primarily the beneficial, as opposed to the legal interest. So the title holder is not necessarily the one subject to CGT on the disposal. Good examples of this are bare trustees and nominees.

So if you have a case where A, is the legal owner but holds the property as a nominee or bare trustee for B, on a disposal of the property it is B that is subject to CGT. Similarly there is no CGT charge on any transfer of the legal interest from A to B.

This, or at least variations on this, are very common. There are many instances where a property is held legally by one individual but actually occupied by another. In this case unless you can show that the occupier of the property actually held the beneficial interest, any capital gain on disposal would arise to the legal owner and would be subject to CGT.

By contrast if the occupier was subject to CGT they may well qualify for a CGT exemption under the principal private residence ('PPR') relief rules.

So determining the beneficial interest can be very important for CGT purposes. It has been held in various cases that if a spouse contributes directly or indirectly towards the initial cost, or towards mortgage instalments, he/she acquires, in equity, an interest in the matrimonial home proportional to those contributions even though the other spouse alone is registered as the legal owner.

In other cases the beneficial interest will depend on who has the 'rights and responsibilities of ownership'. This will include the responsibility for bills, ability to occupy it, ability to determine when it is sold, benefiting from the proceeds of sale etc.

If you wanted to argue that property was held as a nominee or bare trustee it is usually advisable to back all this up with a nominee agreement specifically stating who holds the beneficial interest in the property.

Proceeds of sale

One point that is worth noting is that just receiving a share of the proceeds of sale would not in itself mean that a share of the beneficial interest was held. It could be argued that this was just an allocation of the proceeds and providing the recipient had no other interest or rights over the property no beneficial entitlement could arise.

This could be useful if you have a situation where A wishes to purchase a property for B. The property will be occupied by B and A still wants to benefit from the future proceeds of sale.

By carefully structuring the agreement between A and B to show that A has no beneficial entitlement but can receive a share of the proceeds the gain would arise fully on B and as such would be exempt from CGT as his main residence.

Example

Jack bought a house in January 2001 for £50,000 and occupied it with his wife until January 2002, when they separated. He bought a new house for himself whilst she remained in the matrimonial home. They divorced in May 2004.

In August 2008 the Court ordered that Jill should be given 1/3 of the proceeds of sale of the matrimonial home. In January 2009 the house was sold for £180,000.

The gain accruing to Jack is computed as follows:
 
                                                   £
Disposal proceeds                180,000

Less Cost                             - 50,000

Net gain                               130,000

Jacks Private residence relief

Period of ownership:

January 2001 - January 2009 = 8 years

Period of only or main residence:

January 2001 - January 2002 = 1 year + last 3 years = 4 years PPR relief = 4/8 * £130,000 = £65,000

The chargeable gain is £65,000 before the annual exemption.

Jack is not entitled to a deduction for the £60,000 paid to Jill because this sum is an allocation of the proceeds and not a deduction in arriving at the gain.

Jill is not charged to Capital Gains Tax on the £60,000 she has received. It represents financial provision for her ordered by the Court and is not a sum received in consideration for the disposal of an asset.

So receiving the proceeds of sale is separate and distinct from the beneficial/equitable ownership and could be used in appropriate cases to minimise CGT on the disposal of assets.

The key issue is to ensure that the initial purchase is structured correctly with the beneficial ownership held by the individual subject to the lowest taxes eg the occupier for PPR relief purposes or an individual who will become non UK resident (eg to obtain the CGT exemption).




<< Previous | Next >>



·  PET and gift of AIM shares - USERNAME: wealth - 09/12/2013
·  Work in the UK for Statutory Residence Test - USERNAME: lhuggybear - 09/12/2013
·  Full vs insufficient income nomination for non doms - USERNAME: Fred - 09/12/2013
·  Tax treatment of payments on disposal of business - USERNAME: sam1 - 09/12/2013
·  Tax deduction for visa/work permit fees - USERNAME: Rob - 09/12/2013
·  Procedure for becoming resident but non UK domiciled - USERNAME: matt - 09/12/2013
·  CGT for non residents from April 2015 - USERNAME: DN - 06/12/2013
·  UK tax on US dividends - USERNAME: V V G - 06/12/2013
·  Dividends on class A and B shares - USERNAME: JamieS - 06/12/2013