Tax treatment of transfer of property to wife in different scenarios - USERNAME: dnj - 24/04/2015
Tax Question:
My wife and I are UK non-resident and my wife is also a non-dom. I am nearing completion of a house renovation project (located in the UK) and will shortly let the house until we both settle in the UK (letting is an effort to support my intention that the house is a capital issue not development or trading).
In order to share the income tax (rental) and possible CGT burden (gains after 6th April 2015) I am considering gifting my wife a share in the property (I have the full IHT nil-rate band available) or selling her a share worth ?250k (to stay wthin the 1% samp duty band).
Before proceeding, what I would like to know is how both cases of sale and gift would be treated for taxation by HMRC, both immediately and upon final disposal, for each of the cases of posssible treatment by HMRC (as capital investment business or as development business).
Answer:
It would make sense to transfer a share of the property, particular in terms of income tax if she has some of her basic rate band available. It should be noted that as you state, as non UK residents it would only be the capital gain after April 2015 that would be within the scope of UK CGT. Once you become UK resident the full gain on disposal would be subject to UK CGT.
Irrespective of whether you sell the property for consideration or simply gift it, for CGT purposes this is treated as a nil gain/nil loss transfer. This means that the disposal proceeds for CGT purposes are deemed so that no gain or loss arises to you (effectively therefore proceeds are deemed to be equivalent to your cost). This would then be her base cost for a future disposal so that the gain would arise on a future disposal.
If you held the property as a trader the rule is different and the property is treated as being transferred at its market value at the time of transfer. This would then realise a trading profit for you. She would then hold with her "cost" as the market value on transfer.