Can I transfer part of my buy-to-let property to my daughter to reduce my tax bill?

Question

I wish to sell my buy-to-let property in the next few years. Can I transfer part of the property to my daughter each year to minimise capital gains tax by using my yearly allowance? While it would take about six tax years to transfer all of the property, it is likely we would do this for the next two years and sell up in year three.

From

TM/Chester

In law, you can dispose of your property in the way you envisage. However, a piecemeal transfer in the way you suggest is likely to be deemed a tax avoidance scheme under the ‘Ramsey’ principle. This says one should look at not only a transaction but the series of steps around it and their effect.

Clearly, this series of transactions would be to avoid tax and, in this way, the scheme would be disallowed under the anti-avoidance legislation and potentially taxed as if you had transferred the property to your daughter on the first transfer.

There is further anti-avoidance legislation that taxes in full on the initial transfer in a piecemeal transaction, where there is a commitment to transfer all the property from seller to buyer. In a similar fashion, the transaction would be taxed if you had transferred the property to your daughter on the first transfer.

In any event, a transaction that involves a related party would be valued at an arm’s length basis and therefore the disposal value for tax purposes would be the value of the property on the open market.

For inheritance tax purposes, the transaction would be deemed to be a potentially exempt transfer and would be free of tax seven years from the last transfer from you to your daughter, or taxed at up to 40% if you don’t survive seven years from the last transaction.

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Source Moneywise http://bit.ly/2I8GiOO