middle aged marriage with two homes - selling one Capital gains?

sixtdb

I was a single 50 year old house owner who 4 years ago married a single 53 year old house owner. We have now been married nearly 5 years and wish to sell my old house which is still in my name (my wife's is in hers) I do not have a mortgage on my old house, but do owe my father a loan used to buy it of £60,000 (One of the reasons I wish to sell it to pay back the loan). Presently, I am not employed and do not claim any benefits, my wife is a 40% tax payer.

Prior to becoming married, I lived in my house for 16 years. For the past 4 years I have lived in my wife's house of 26 years, while I renovated my house. It has never been rented out.

I think I understand some of the basic's regarding capital gains tax but can find no help regarding our situation - two single, house owners getting married and wanting to sell one house. Can anyone provide us with some advice?

CLAPTON

married people can only have one principal private residence PPR

so yours since your marriage will depend upon where you and your wife lived during that process

basically you work out the capital gain as the dfference between selling and buying price less allowable expenses (buying & selling, capital improvements etc)

the gain is considerd to be evenly spread throughout the period of ownership

the period when it was you PPR and the last 36 months are exempt

you also have a cgt allowance of 10,900

depending upon the full figures you may avoid cgt altogether ; but that depends upon the details

I'm assuming you haven't let the house in the mean time.

xylophone

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

zygurat789

So, the OP has owned the house for 20 years, 16 qualify for private residence relief and the last 3 are exempt, therefore 0.05% of the toatal gain over the 20 years is chargeable to CGT. After renovations this could be more than £10,900. Oh BTW keep all the receipts for the renovations.
The chances are that the house has not risen appreciably in value over the last 4 years and the pro-rata method would appear to disadvantage the OP. The help sheets are not definitive, just a guide, would a professional valuation be acceptable?
If not then consider making the wife a co-owner, must be done properly, and thus increasing the exempt amount to £21,800 and if you do not work in the year of sale there would be another £9,440 tax free if there is no other income

zzzLazyDaisy

zygurat789 wrote: »

if you do not work in the year of sale there would be another £9,440 tax free if there is no other income

I agree with what you have said apart from this ^^^

The increase in value of the property is a capital gain - hence capital gains tax. It is not classed as income, and so the personal allowance cannot be deducted.

00ec25

zygurat789 wrote: »

If not then consider making the wife a co-owner, must be done properly, and thus increasing the exempt amount to £21,800

that would be a dangerous idea that needs careful checking to see if its worth it.

The wife cannot inherit any PRR status for the years before they married as she did not live there and would only get some PRR if she lived there after the marraige - as Clapton has already identified the OP implies that the marital home is the wife's own residence not the one now being sold.

So the total amount of tax liability would probably increase if wife is made an owner - which may or may offset the extra 10,600 her allowance would bring to the calculation

zygurat789 wrote: »

and if you do not work in the year of sale there would be another £9,440 tax free if there is no other income

zzzLazyDaisy wrote: »

I agree with what you have said apart from this ^^^

The increase in value of the property is a capital gain - hence capital gains tax. It is not classed as income, and so the personal allowance cannot be deducted.

what zyugrat is saying is the amount exposed to 18% CGT is based on how much of the total worth remains available below the higher rate income tax bracket, which is indeed 9,440 + 32,010 = 41,450

so if he has no / little income then more of the gain is available for CGT at the 18% rate rather than the 28% rate - so in this case he has a point

holly_hobby

Just to note - you don't need to physically effect a TOE to Wife so she is a joint legal owner, as CGT liability is based on beneficial ownership not legal ownership (which can differ) - to which it may be easily argued that your wife will clearly be a joint benefical owner from the disposal, esp if the proceeds are paid into a joint bank account and you with both jointly enjoy the capital - which your annual CGT exemption is £10,900 per individual for 2013/14 (rising to £11k in tax yr 2014/15).

However, as discussed she does not qualify for any PRR relief, as a result of which neither are the last 36 mths a permitted exemption from her calcs.

So, you will need to crunch some numbers to see whether declaring her as joint beneficial owner will result in a lower overall liaibity as a whole, or whether reporting the gain solely under your own annual SA (with PRR qualification and final 36 mth exemption applied to the full gain) will be the way to go.

If you have a net gain in excess of your annual exemption, this is reported via self assessment (if you already use SA, then the event must be reported even if no acutal CGT to pay).

Hope this helps

Holly