CGT - transfer to spouse (second case!)

[Arborbridge]

I note the other thread concerning the transfer of shares.

How would one go about sharing a flat in this manner? At present, said flat is in one name only, but we intend to sell it soon. A complication is that there is a small mortgage on the place in one name - in principle, this could be paid off if necessary. That mortgage, we would like to retain if possible if only for security reasons of having a charge on it.

Any advice, dos or don'ts with regard to CGT before we get involved in selling?


Arb.

[genou]

I note the other thread concerning the transfer of shares.

How would one go about sharing a flat in this manner? At present, said flat is in one name only, but we intend to sell it soon. A complication is that there is a small mortgage on the place in one name - in principle, this could be paid off if necessary. That mortgage, we would like to retain if possible if only for security reasons of having a charge on it.

Any advice, dos or don'ts with regard to CGT before we get involved in selling?


Arb.

In principle, you can do a similar declaration of trust, which does not require to be registered with the Land Registry.

But you mention a mortgage. Your lender may well have strong views on you giving away their security ( which might affect your ability to borrow again should they find out ) , so you should either pay it off or consult them. The transaction costs of fixing the mortgage position would be a consideration as to whether the game is worth the candle.

You can register for alerts on the property with the Land Registry, so retaining your lender's charge isn't that big a deal.

[Lootman]

I note the other thread concerning the transfer of shares.

How would one go about sharing a flat in this manner? At present, said flat is in one name only, but we intend to sell it soon. A complication is that there is a small mortgage on the place in one name - in principle, this could be paid off if necessary. That mortgage, we would like to retain if possible if only for security reasons of having a charge on it.

Any advice, dos or don'ts with regard to CGT before we get involved in selling?

In principle, you can do a similar declaration of trust, which does not require to be registered with the Land Registry.

But you mention a mortgage. Your lender may well have strong views on you giving away their security ( which might affect your ability to borrow again should they find out ) , so you should either pay it off or consult them. The transaction costs of fixing the mortgage position would be a consideration as to whether the game is worth the candle.

You can register for alerts on the property with the Land Registry, so retaining your lender's charge isn't that big a deal.

Yes, we used a declaration of trust to change our percentage ownership of a property without bothering any third parties e.g. the land registry, the taxman and (had we had a mortgage) the lender.

AIUI the only material effect is a change in the allocation of proceeds upon a sale. Otherwise you can change ownership via such a side-agreement without anyone else knowing. And of course without stamp duty.

You can register the document with the LR, which may be safer if one of you dies. But you do not have to and we never bothered.

[genou]

Yes, we used a declaration of trust to change our percentage ownership of a property without bothering any third parties e.g. the land registry, the taxman and (had we had a mortgage) the lender.

My emphasis on the key omission.

Given that you are intending to sell the property, bear in mind that you are going to struggle to give instructions to a solicitor that the property is partially owned by your wife whilst they are looking at a mortgage that says you are the sole owner.

[Lootman]

Yes, we used a declaration of trust to change our percentage ownership of a property without bothering any third parties e.g. the land registry, the taxman and (had we had a mortgage) the lender.

My emphasis on the key omission.

Given that you are intending to sell the property, bear in mind that you are going to struggle to give instructions to a solicitor that the property is partially owned by your wife whilst they are looking at a mortgage that says you are the sole owner.

No in this case she and I both owned the place anyway. It was just our respective percentage ownership percentage ownerships that changed via the side agreement.

[Arborbridge]

My emphasis on the key omission.

Given that you are intending to sell the property, bear in mind that you are going to struggle to give instructions to a solicitor that the property is partially owned by your wife whilst they are looking at a mortgage that says you are the sole owner.

No in this case she and I both owned the place anyway. It was just our respective percentage ownership percentage ownerships that changed via the side agreement.

In this case it is owned by only one of us, and the mortgage is in that name. From the above, it seems as though your case is different.

Arb.

[Arborbridge]

You can register for alerts on the property with the Land Registry, so retaining your lender's charge isn't that big a deal.

That has been done, but from what I've heard it is far from foold proof in that you may not get any alert until after the horse has bolted.

I guess the risk is quite low, though - especially if we are popping in and out, collecting post and selling it.

Arb.

[Lootman]

No in this case she and I both owned the place anyway. It was just our respective percentage ownerships that changed via the side agreement.

In this case it is owned by only one of us, and the mortgage is in that name. From the above, it seems as though your case is different.

It is a different case but you said that you could pay off that residual mortgage if it made sense so I would still look into a declaration of trust. It essentially allows you to change the beneficial ownership of a property without changing the legal title, and without interacting with third parties.

And this was not something I cooked up myself. It was my solicitor who suggested it and produced the document. He later successfully sold the property without any problem.

[Arborbridge]

In this case it is owned by only one of us, and the mortgage is in that name. From the above, it seems as though your case is different.

It is a different case but you said that you could pay off that residual mortgage if it made sense so I would still look into a declaration of trust. It essentially allows you to change the beneficial ownership of a property without changing the legal title, and without interacting with third parties.

And this was not something I cooked up myself. It was my solicitor who suggested it and produced the document. He later successfully sold the property without any problem.

Thanks. Certainly worth thinking of paying off the mortgage in that case.

I remember meeting a solicitor who once told me you could even do something of this sort after the sale, though I'm not sure what the mechanism is.

Arb.

[Lootman]

It is a different case but you said that you could pay off that residual mortgage if it made sense so I would still look into a declaration of trust. It essentially allows you to change the beneficial ownership of a property without changing the legal title, and without interacting with third parties.

And this was not something I cooked up myself. It was my solicitor who suggested it and produced the document. He later successfully sold the property without any problem.

Thanks. Certainly worth thinking of paying off the mortgage in that case.

I remember meeting a solicitor who once told me you could even do something of this sort after the sale, though I'm not sure what the mechanism is.

I am not even 100% convinced that having a mortgage would prevent you from doing a declaration of trust that changes the percentage ownership. Genou suggests that it might cause a problem with a sale but I am not so sure because what lenders really care about is getting their money back. A sale would achieve that. And of course you could always pay off the mortgage immediately prior to the sale.

The beauty of a declaration of trust is that only the two owners need be involved in that process. It can be done instantly and at any time. It does need to be done properly however, and signed and witnessed.

[genou]

Thanks. Certainly worth thinking of paying off the mortgage in that case.

I remember meeting a solicitor who once told me you could even do something of this sort after the sale, though I'm not sure what the mechanism is.

I'm damned if I'd trust him with my spoons.

I am not even 100% convinced that having a mortgage would prevent you from doing a declaration of trust that changes the percentage ownership. Genou suggests that it might cause a problem with a sale but I am not so sure because what lenders really care about is getting their money back. A sale would achieve that. And of course you could always pay off the mortgage immediately prior to the sale.

The beauty of a declaration of trust is that only the two owners need be involved in that process. It can be done instantly and at any time. It does need to be done properly however, and signed and witnessed.

The problem with this approach is that it depends on everything going swimmingly well, and nobody finding out that you are telling different stories to different participants. The mortgage will be nailed on to forbid donating away part of the security, and the tax advantage depends on it.

If it sounds like a good idea, picture yourself disclosing exactly what one is proposing to all the interested parties. If you can't envisage smiles all round, maybe it's not such a great idea.

Done properly, donating a share whilst there is a mortgage will involve the donee coming on to the mortgage, so the transfer is not gratuitous. Welcome to the world of SDLT. Failing to report a non-gratuitous transfer liable to SDLT might cause HMRC to take umbrage.

[Lootman]

I am not even 100% convinced that having a mortgage would prevent you from doing a declaration of trust that changes the percentage ownership. Genou suggests that it might cause a problem with a sale but I am not so sure because what lenders really care about is getting their money back. A sale would achieve that. And of course you could always pay off the mortgage immediately prior to the sale.

The beauty of a declaration of trust is that only the two owners need be involved in that process. It can be done instantly and at any time. It does need to be done properly however, and signed and witnessed.

The problem with this approach is that it depends on everything going swimmingly well, and nobody finding out that you are telling different stories to different participants. The mortgage will be nailed on to forbid donating away part of the security, and the tax advantage depends on it.

If it sounds like a good idea, picture yourself disclosing exactly what one is proposing to all the interested parties. If you can't envisage smiles all round, maybe it's not such a great idea.

Done properly, donating a share whilst there is a mortgage will involve the donee coming on to the mortgage, so the transfer is not gratuitous. Welcome to the world of SDLT. Failing to report a non-gratuitous transfer liable to SDLT might cause HMRC to take umbrage.

SDLT should not apply if a partial disposal is done with a spouse for zero consideration. Likewise CGT does not arise. So I do not believe that there is any tax issue here, and there certainly was not when my wife and I did this (around 2003, with both an accountant and a solicitor involved).

As for the rest I think the important point is that this does not have to involve any other change during the period of ownership. It only really affects anything upon a sale, since it alters the amount of the proceeds that goes to each spouse. So I maintain it is a purely private arrangement and indeed it could be reversed at any future point by mutual consent, as easily as by destroying the document (assuming that you did not register it with the LR, which you can do but do not need to. I did not).

Again re the mortgage I can see that taking the more solvent of the two owners off the hook might be seen as increasing default risk. But in practice as long as the payments are made mortgage lenders tend to let sleeping dogs lie. But if you do add an owner in this way and decide that you want to tell the lender, I doubt that they would mind and I would in that case also tell the insurer.

[genou]

SDLT should not apply if a partial disposal is done with a spouse for zero consideration. Likewise CGT does not arise. So I do not believe that there is any tax issue here, and there certainly was not when my wife and I did this (around 2003, with both an accountant and a solicitor involved).

You explicitly said there was no mortgage in your case, so all good as a gift. But I have been addressing the case ( as in the OP ) where there is a loan.

Done with the lender's required acceptance, transferring a share of a mortgaged property requires the new part owner to join the mortgage. Joining the mortgage is consideration - property for debt. There is no gift. Hence SDLT.

[Lootman]

SDLT should not apply if a partial disposal is done with a spouse for zero consideration. Likewise CGT does not arise. So I do not believe that there is any tax issue here, and there certainly was not when my wife and I did this (around 2003, with both an accountant and a solicitor involved).

You explicitly said there was no mortgage in your case, so all good as a gift. But I have been addressing the case ( as in the OP ) where there is a loan.

Done with the lender's required acceptance, transferring a share of a mortgaged property requires the new part owner to join the mortgage. Joining the mortgage is consideration - property for debt. There is no gift. Hence SDLT.

Considering that cash and assets can freely pass between spouses without being deemed a tax event, and so often not even reportable, I suspect that this could be finessed and structured in such a way that that rather obscure technicality does not apply.

In fact now i think about it when I got married (1984) I added my wife to the title (and the mortgage) of the home I already owned, and no stamp duty was deemed due.

That said as suggested before, if nervous I would just pay off the rump of the mortgage and then execute the DofT free and clear of any such doubt.

[genou]

Considering that cash and assets can freely pass between spouses without being deemed a tax event, and so often not even reportable, I suspect that this could be finessed and structured in such a way that that rather obscure technicality does not apply.

My emphasis. If you think the law that transferring property with a mortgage is not a gift is "an obscure technicality" you really need to stop commenting on tax questions.

[Lootman]

Considering that cash and assets can freely pass between spouses without being deemed a tax event, and so often not even reportable, I suspect that this could be finessed and structured in such a way that that rather obscure technicality does not apply.

My emphasis. If you think the law that transferring property with a mortgage is not a gift is "an obscure technicality" you really need to stop commenting on tax questions.

It is a technicality in the sense that the taxman typically takes no notice of transfers of value between spouses, gifts or not.

So even if you could produce a citation of case law that shows this alleged technicality being upheld, and you have not, I have already outlined a couple of ways in which that could be circumvented. And you ignored my own direct practical experience that contradicts your purely theoretical opinion.

This is not the first time that you have been overly literal and theoretical on tax matters here. So maybe it is you who should "stop commenting on tax questions". Put that book down and actually get out there in the real world.

[Arborbridge]

A couple of further thoughts: I remember when thinking of putting a mortgaged property in joint names previously, we were told by the lender that it would effectively be a new mortgage - thus incurring costs from them.

In the current times, for 2024/25 the CGT allowance has cut so severely, that I wonder if it is worth the bother. There will be costs of some sort and the only gain will be £3000 of allowance to set against the gain. If there are solicitor's costs and even some risk that it may not be allowable, it is not worth the candle.

Arb.

[Lootman]

A couple of further thoughts: I remember when thinking of putting a mortgaged property in joint names previously, we were told by the lender that it would effectively be a new mortgage - thus incurring costs from them.

In the current times, for 2024/25 the CGT allowance has cut so severely, that I wonder if it is worth the bother. There will be costs of some sort and the only gain will be £3000 of allowance to set against the gain. If there are solicitor's costs and even some risk that it may not be allowable, it is not worth the candle.

Arb.

Put that way, I agree. In the past I have added a person to a title or mortgage without any issue or cost. Or tax. But those were 15 and 40 years ago.

So if this is only for an extra annual CGT allowance then it may be moot. Maybe you can transfer some shares instead.

My wife is over 10 years younger than me so it can make sense to transfer my share positions showing a loss to her, whilst she transfers share positions showing large gains to me. On the basis that I am likely to die 10-15 years before her, and so the CGT liability dies with me.

[Lootman]

Given the differing opinions offered about changing ownership of a property via a Declaration of Trust, I draw attention to a topic from 2022 where I asked about the tax implications of changing the owners and ownership percentages of a property. Although that topic did not involve spouses.

These words from ClitheroeKid were particularly instructive I thought. It does mention Genou's idea that stamp duty may be due if there is a mortgage, (assuming the amount involved is above the threshold anyway). But it also makes it clear that it is perfectly OK for a DofT to be kept private:

There should be no SDLT payable in this situation, as it's not payable on gifts (unless the gift also involves release from a mortgage).

However, CGT may be payable, as a disposal of a share in property by way of a gift is treated as sale of the share at market value.

There's no need for C to become a joint owner of the legal title - his interest can be adequately protected by a Declaration of Trust. This has the additional potential benefit that anyone looking at the Land Registry title will see no reference to C, and his interest in the property can therefore be kept secret.

viewtopic.php?f=49&t=34795&p=509358&hilit=SDLT#p509358

I also had the thought that someone could pay off their mortgage on Monday, change the ownership via a DofT on Tuesday and then remortgage the property. But then that just shows how silly the whole thing is.

[genou]

It is a technicality in the sense that the taxman typically takes no notice of transfers of value between spouses, gifts or not.

[expletive deleted].

https://www.gov.uk/guidance/sdlt-transf ... r-property