Capital gain tax question...

WONDERWOMAN

Hello

My husband and I are thinking of buying a second property to live in and we would like to rent out our current house. I was wondering, if we come to sell the house in about 5 years how much capital gains tax are we liable for? Is there any tax relief?

Our current house is owned by my husband, am I right in thinking if he gave me the house as a gift then I would be liable for all the capital gains?

He bought the house 7 years ago, paid 160k, now worth 250k.

Any advice much appreciated...

SeniorSam

If you change ownership of the house to Tenants in Common before letting, you each own half and as such will have both your CGT allowances to set against any gain. Rules may change in 5 years time, but at present, you can offset part of the time the house was a private residence. The CGT will be the difference from the £250k price until sold, less expenditure whilst let less allowances. Good idea to get a written valuation before letting.

Sam

WONDERWOMAN

Many Thanks SeniorSam, just so I understand correctly... If the house was to go up in profit by 20k (270k), we only pay the CGT on the 20k, however our CGT allowance is approx 10k each so we won't need to pay any tax? any profit above the CGT allowance will be taxable?

SeniorSam

Correct. You only get taxed ABOVE your CGT allowance for the year. If you each own half (Tenants in Common) then you have both allowances before any tax. Changing the ownership is simply a matter of contacting the Land Registry office and they will let you have forms to do this yourself. It's easy.

Sam

Elaine_Wilson

The current value does not come onto the calculation.If you sell in five year's time then the total period of ownership will be 12 years and the gain, say, £110,000.

Private residence relief will be available for the 7 years you actually lived there plus the last 3 (you would have to do the calculation in months).

So the chargeable bit will be 2/12ths, or about £18,000.

If you do as Senior Sam suggested and put it into both your names then the annual exemptions will probably cover this.

But just in case the gain is more you will also be entitled to Lettings relief. This will reduce the gain to nil subject to a maximum claim of £40,000. (It's a bit more complicated than that but it reduces to what I have said in your case)

So it seems unlikely there will be any tax to pay.

CLAPTON

Bad idea for your OH to give you the property or even to give you half the property
..because he will be eligible for private residentual relief PPR which means he will have 7 + 3 years exempt from cgt plus letting relief; if he gives you the property you DO NOT inherit it and so have no PPR and no letting relief

bad idea

so for the figures you quote
if he retains owneship

gain is 270k- 160k = 110,k

he would get 7+3 = 10 or 12 year ownership exepmt i.e. 10/12 od 110,000 exempt or 91,666 exeempt

plus letting relief of 2/12 of 110,000 or 18,333

so zero cgt gain


however if he gaves half to you

his taxable gain would be zero but yours would be
half the gain =110,000/2 = 55000
no PPR and no letting relief
but your cgt allowance of 10,600 so taxable gain = 34,400 taxed at 18% or 28%

bad news

jimmo

Clapton would be correct if the transfer between husband and wife takes place after they have moved out of the house in question.
However if the transfer takes place whilst they are still living in the house as their main residence an extended period of ownership is created which effectively gives the wife exactly the same main residence relief as the husband would have been entitled to.
http://www.hmrc.gov.uk/manuals/cgmanual/cg64950.htm

Pennywise

jimmo wrote: »

Clapton would be correct if the transfer between husband and wife takes place after they have moved out of the house in question.
However if the transfer takes place whilst they are still living in the house as their main residence an extended period of ownership is created which effectively gives the wife exactly the same main residence relief as the husband would have been entitled to.
http://www.hmrc.gov.uk/manuals/cgmanual/cg64950.htm

Surely it depends on whether the OP was married to him during the 7 years he's owned it? If she was and had lived in it for those same 7 years, then yes, you're quite right. BUT, if, say, she only married him a year ago and has only lived in the house as a married couple for a year, then surely she won't inherit his full PPR will she? Clarification from the OP would help clarify.

ceeforcat

Can't agree with that Pennywise - in my view the length of marriage is not relevant at the time of the transfer - simply the fact that they were married at that time. jimmo?

jimmo

See the very next page after my link above.
http://www.hmrc.gov.uk/manuals/cgmanual/cg64953.htm
Actually I can see some area of potential doubt in that in this case.
In an earlier thread, in 2008, the OP was considering selling her flat and it therefore seems reasonable to assume that she has already benefited from main residence relief during at least some part of her husband's period of residence at the house now being considered.
https://forums.moneysavingexpert.com/discussion/881899
I feel a look at the legislation clears any doubt.
http://www.legislation.gov.uk/ukpga/1992/12/section/222/enacted
S222 (7) TCGA 92, particularly paras (a) and (b) seems to make it clear that the wife will inherit the husband's relief regardless of having her own main residence somewhere else for part of that period.