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Suppose Alice and Bob both own 50% of a rental property each, as tenants in common. Alice gifts 10% to Bob so they now own 40% and 60%. Do Alice or Bob need to declare this gift to any government body?

Alice will need to tell HMRC about the gain if the gift triggers CGT. How does she prove to HMRC that she gave the 10% in the year she gave it so that she can use the correct CGT allowance?

If the gain on 5% is below the threshold, would Alice have avoided CGT if she had made two smaller gifts in consecutive years?

  • A change in the fractions of ownership in a tenancy in common requires changing the title deed, no? In the absence of specific fractions, tenancies in common default to equal shares,and if that’s the case, a transfer deed or conveyance would need to be executed. – Dilip Sarwate Mar 27 '18 at 19:14
  • @DilipSarwate: title deeds no longer exist in the UK. The document in question is a declaration of trust; see below. – Steve Melnikoff Mar 27 '18 at 20:45
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Note that I'm neither an accountant nor a lawyer. If in doubt, seek advice from an expert.

When creating a tenancy in common, a Declaration of Trust must be drawn up which specifies the percentage ownership of each person. It must be signed and witnessed to take effect.

If the percentages change, then a new Declaration must be created.

As far as I'm aware, a DoT doesn't have to be presented to HMRC unless they ask for it - or unless the owners are married and want to be taxed unequally, in which case they must send a copy of the Declaration to HMRC, along with a Form 17.

If the gain on 5% is below the threshold, would Alice have avoided CGT if she had made two smaller gifts in consecutive years?

Probably not. "Linked" transactions made within 6 years may be treated as a single transaction. (See, for example, here or here.)

Note that if the property is mortgaged, and the value of the proportion of the mortgage being transferred is greater than the threshold for Stamp Duty Land Tax, that may also be due.

  • But is there a gift tax in the UK? Alice has made Bob a gift of 10% of the value of the rental property. In the US, (US citizen) spouses can give each other unlimited amounts as gifts without incurring gift tax, but presumably Alice and Bob are not married to each other, and the question is about UK anyway. – Dilip Sarwate Mar 28 '18 at 2:28
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    @DilipSarwate There's no gift-tax per se, but (roughly) any gifts made in the seven years before someone dies are treated as still being part of their estate for inheritance tax purposes (in other words, you can't give a house away on your death-bed to avoid IHT). There's an exemption of (I think) £3,000 per year per recipient which won't get clawed back in this way. – TripeHound Mar 28 '18 at 7:36
  • Your sources for "probably not [using two years of thresholds]" says "I have not had chance to research on whether you can use annual exemption in ‘series of transactions’." A similar issue explored on taxation.co.uk/Articles/2014/03/24/322371/sibling-transaction says that annual allowances can be used for linked transactions – Robino Mar 28 '18 at 17:50

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