How long do I need to wait to sell my buy-to-let if I add my wife on the deeds?

11 October 2019

Q

I own a rental property in my name. I would like to put my wife on to the deeds before I sell it, so we can split the tax liability. We are both basic-rate taxpayers.

From
ML/Wokingham

A

I have never come across this three-month rule, although that doesn’t mean it doesn’t exist. I would be very interested to know where, and from whom, you came across it. I wonder if it something to do with the rule about a property once having been a ‘principal private residence’, where there may be capital gains reductions if you lived in it as main residence for a period of time. Your wife would not qualify for this exemption, and I understand it would also invalidate your own exemption if you transferred the property to joint names.

There is no capital gains tax when you transfer a part-share of the property to your wife. The purchase cost will be the one that you paid when you originally acquired it but now divided between you according to the percentage you now own. So, assuming you split the ownership 50/50, then your purchase cost is divided 50/50.

To implement the transfer of ownership, a solicitor can prepare a Deed of Trust, which specifies how you want ownership to be reallocated. A declaration of trust will be cheaper than registering a legal transfer at the Land Registry.

For income tax purposes, any future rental income will be taxable on a 50/50 basis. If you want a different split, you will need to complete a Form 17 and send it to HMRC with a copy of the Deed of Trust: this form is a declaration of income to ensure that property income can be reallocated between you in the right percentages. Without this, HMRC does not accept the Deed of Trust as valid for splitting income tax.

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