So what might be the benefit of transferring property before the new tax year begins?
Capital Gains Tax (CGT) annual allowance
This is the most common reason why you might wish to transfer a property before the end of the tax year. We each have an annual allowance for CGT. In 2014/15 this was £11,000, meaning that CGT is only payable where gains of more than £11,000 are made during the tax year.
The annual allowance works on a 'use it or lose it' basis - if the tax year ends without the annual exemption being claimed, it is lost. CGT is payable on any gains made on the transfer of property (unless it is your main residence), and with rates currently at 18% or 28% depending on your income tax bracket, making full use of your annual allowance before it disappears is certainly to be advised.
Transferring assets on separation or divorce
Transfers between spouses and civil partners are exempt from CGT. This exemption is lost on separation or divorce, but continues to apply until the end of the tax year of separation. This can be a useful additional period to allow a separating couple to settle their affairs in a tax efficient manner, but again, once the new tax year begins, such transfers may incur a tax charge.
CGT for non-residents
Non-UK residents are currently not subject to CGT when disposing of UK residential property, but with effect from 6 April 2015, this will change with sales or transfers of non-residents' property being potentially subject to a CGT charge. Advice should be sought prior to the end of the tax year to consider whether there are steps which can be taken to mitigate the potential CGT charge on a future sale or transfer (but bearing in mind that valuations will be rebased to 5 April).
There may also be other considerations in determining which spouse or family member should hold title to a property. Income tax can be an important factor. For example, one spouse might pay income tax at a lower marginal rate, and so will be best placed to hold title to any investment property, as rental income will be charged at a lower rate.
Inheritance tax and your family's succession planning should also be borne in mind in transferring any property. Will your succession plan be affected by passing assets to a particular family member? Will their assets exceed the nil rate band for inheritance tax? In cases like this, it is important to remember the bigger picture, and not to let short-term tax saving cloud the picture.
At Morton Fraser, we are experts in tax and succession planning, and can advise on the how the various regimes interact, ensuring joined-up thinking and a clear picture of the options available to you and your family. If you are thinking of any planning in this tax year please contact us on the details below, for even more clarity.