October 26th, 2012 / Insight posted in

Property transfer would cut capital gains tax bill

MB writes: We plan to sell our converted barn and 12 acres of farm land. The barn´s value without the land is £350,000 and £450,000 with it. The base cost of the land was £20,000. To avoid stamp duty we put the land in my daughter´s name and the barn in mine. Now there is a potential capital-gains tax (CGT) liability on my daughter, even with indexation. Can this liability be mitigated by transferring the land into joint ownership of my daughter and her husband or into the combined ownership of my daughter, son-in-law and their three children?

The transfers would be possible and sensible. Your son-in-law would take over the relevant proportion of the original base cost of the land. His CGT annual allowances would therefore be available to reduce the overall gain for the family. As regards the children, the transfers would be classed as chargeable and holdover relief would not be possible as the asset is not a business asset. This would mean the transfer to the children would trigger a gain for your daughter. This gain would be based on the market value of the percentage of transferred land. As the value of a minority share in the land would be discounted, this gain would in theory be based on a lower value. The sale would realise the actual market value and the appropriate percentage would be allocated to the children. Hence the transfer to the children would be less attractive than between spouses.