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.
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.
Do you have a money question for out panel of experts?
At Moneywise, we have a panel of top experts to help with your money and investing questions. If you have a tax issue that’s keeping you awake at night, a question about investing that you’ve always wondered but been too shy to ask, or even need a full money makeover for free, we’d love to hear from you.
If you have been treated unfairly by a firm send the details to Moneywise’s Fight for your Rights and we could take up the fight for you.
If you have a question about your investments or investing in general, put it to our Investment Doctor.
If you have a question about your personal finances – anything from tax to state pensions, inheritance tax, property sales and more – write to our Ask the experts panel.
Would you like a full money makeover? We will arrange a free one-to-one meeting for you with an FCA-regulated independent financial adviser worth over £2,000.
See Moneywise.co.uk/money-makeover for more details.