Capital Gains for unmarried couple

alecpr

Hi,

My girlfriend has just sold her flat making aprox 40K profit. She is moving in with me and so it seems sensible that we use the money from the house to clear the 24K mortagage that remains on my property.

The mortgage is in my name and we a re not married, so could anyone tell me how we stand when it comes to CGT, is the money used to pay off my mortgage (or to be specific to offset my mortgage by sitting in my current account) subject to CGT? and if so is there any more tax efficient way of paying off my mortgage with my girlfreinds money?

Cheers :-)

tom188

If it is a gift/loan I dont think it would be liable to CGT. However it could potentially be liable to inheritance tax or (repayable to estate), although we hope this is irrelevant.

I would say it would be common sense to come up with some written agreement as to whose money is whose. Have you considered putting her name on the mortgage with yours - in which case there would avoid all tax issues. Being that you have presumably discussed in detail this financial commitment you are already making this would not be a much greater step.

Although tax issues are complicated, the unmarried part you are thinking about is generally considered in relation to IHT.

Richie(UK)

Hi Alec,

If this is your only or main residence then CGT should not be an issue as any gain will be exempt. See here for HMRC outline.

Ian_W

If her flat was solely in her name then you don't really come into it. If it was her home, as Richie says above, then with some very, very limited exceptions she isn't liable for CGT, as everyone's principal private residence [PPR] is almost always exempt.

Assuming that is the case then what she does with the money is her business, it's the property sale that gives rise to possible CGT, if it's an exempt transaction cos it's her home that's the end of the matter. See
https://www.hmrc.gov.uk/pdfs/2003_04/capital_gains/ir283.pdf

If it isn't her home or she's been living with you and letting it out she may have some CGT liability but there are extensive reliefs that can be claimed but you need to post more details if that is the case. Either way using the money to pay off or offset against your mortgage isn't relevant.

Whether you tell her this or not, she would be well advised to get some form of agreement in case the two of you split up as just allowing her money to go towards offsetting a mortgage and property in your name alone is rather "trusting" - to say the least!

alecpr

Hi,

Thanks for all your replies. I was thinking that cash was considered an asset and so her giving me an amount of cash over the CGT limit would result in me being liable for capital gains tax. It made sense in my world anyway :-)

So as long as we both survive the next 7 years then we should be fine from a tax point of view, IHT being the only worry.

Good to know I can be mortgage free without any worries from the tax man.

Mortgage should be cleared today, solicitors appointment booked for the other financial aspects of living in sin :-)

Ian_W

I can see where you're coming from but CGT is a tax on the gain made by assets during the time you own them.

So her house gained in value while she owned it, would be liable to CGT by the main home is exempt so no tax to pay. She gives you £50K[say] which you put into paying off your mortgage and when you sell your home has gained in value but again it's exempt. If you'd put the money into another asset like a BTL property or shares, which aren't exempt, the any gain above the £50K initial investment is potentially CGTable.