I have a bungalow that I have owned and rented out for the last 15 years or so. I want to move into the bungalow because of my age (I am 64) and the fact that I have recently been diagnosed with arthritis in my neck and spine. I plan to pay off the outstanding buy-to-let mortgage and put my youngest daughter as joint owner on the deeds. How will this affect me in relation to capital gains tax (CGT) since I plan to do some work once I have moved in, which may increase its value? If I do have to pay CGT, should I do this when I pay off the mortgage or when I come to sell it?
Arthur Weller replies:
If you put your daughter as joint owner on the deeds, the default position is that you are gifting her half the property. This means you will be liable to CGT on half the increase in value, between when you originally bought the property and the date you gift to her. This is so even though she is not paying you anything. Since this is the case, you are probably better off gifting to her first, and doing the capital improvements afterwards. If you gift to her any time before 6 April 2020, you need to pay the CGT on this transfer by 31 January 2021 (however, in the future the time period for paying CGT is changing).
This question was first printed in Tax Insider in October 2019.