election for PPR on marriage

aldershot

I buy house 1989
Girlfriend buys flat 1991
We get together 1998
I sell my house 2013. Sole owner so no CGT due.
We buy house jointly Mar 2014
We get married Aug 2014
Wife still owns flat in sole name (considerable CG)
Married couples can only have one PPR so assuming our joint house is now our joint PPR automatically.
Assuming flat is now subject to CGT from date of marriage + 18months, ie Feb 2016 but her PPR runs from 1991 to that date.
Supposing flat is sold in Dec 2017, CGT would only apply for 22 months/26*12 months (having owned it for 26 years).

A) Is that correct?
Does she have to say anything to the taxman now, given the PPR changed automatically on marriage?

Bob_Bank_Spanker_2

Some missing info. Where has the GF/Wife actually been living? Has the flat been rented out?

aldershot

We lived in both properties concurrently (weekdays/weekends)
I now use the flat (weekdays).
No property has been/is let.

booksurr

depends how much of a fight you want with HMRC?

as you realise the PPR changed with the date of marriage (I will call that the 2014 house for sake of a name). As you have not made a written election to nominate your PPR within 2 years of you first having (actual) occupation of the 2014 house and the flat then the question of which is the marital home and therefore default PPR is a question of the quality of occupation of each property and how you will prove that to HMRC if you wish to argue it is the flat

frankly I think you would have little chance of establishing a claim to PPR on the flat after March 2014 since a key test is "degree of permanence or expectation of continuity" and on that basis logic says that exactly why you acquired the 2014 house was for it to be the main home of you both for the foreseeable future - that is what case law has established as the test of PPR where no valid election has been made

so for the flat
1991 - March 2014 = girlfriend's PPR claim due to actual occupation of her "only" home

Mar 14 - Dec 17 = second home 46 months - 18 = 28 months liable

the CGT would therefore be:
selling price - purchase price - buying (incl SDLT if applic) & selling costs = net gain

less PRR
net gain x (purchase month 1991 - march 14) + 18 ) / total ownership period

that should leave a figure equal to
net gain x 28/total ownership period which is the liable amount

she can then deduct her personal allowance

note unless you intend to delay sale for at least 1 year it is too late for her to now make you a co-owner as HMRC would ignore that on the basis it is done only to reduce tax

aldershot

Thanks for that. So the only debate is whether we take March 2014 (date of purchase of second joint property) or August 2014 (date of marriage) as the change over period. Does it matter if we were having the joint property renovated and were not living there permanently or the fact that Mrs Aldershot was still working and therefore living in her flat weekdays?

It is not going to make a huge difference to the assessment in the end whether the 6 months goes in the numerator or denominator given the period of undisputed occupation. Also, Mrs Aldershot is no longer working so has a minimal income and so is an 18% payer too.

booksurr

aldershot wrote: »

Thanks for that. So the only debate is whether we take March 2014 (date of purchase of second joint property) or August 2014 (date of marriage) as the change over period. Does it matter if we were having the joint property renovated and were not living there permanently or the fact that Mrs Aldershot was still working and therefore living in her flat weekdays?

as you will be making a self assessment it all boils down to:
a) are you telling the truth; and
b) have you done enough research to know what the truth is?

having work done does not automatically mean it ceased to be your main residence since the presumption is you will return once the works are done, otherwise why do the works? Also see period of absence rule: "If for up to a period of 12 months you do not occupy your new home when you acquire it because you are not able to sell your old home, or you need to carry out refurbishment, you can treat up to the first 12 months as if the house had been your only or main residence in that period." https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2016

where Mrs was working and therefore from whence she commuted on a daily basis is an important indicator to it being a main residence, but is not the only indicator...

your very real "problem" is the obvious overlap between what is patently your marital home which you purchased as such and the fact you did not "live" there initially whilst the 2014 house was "being refurbished". Mrs therefore commuted from "her" flat, whilst you were where???

Those factors are neither definitively one way or the other, so you should make a claim and wing it if HMRC pick on you for questioning. After all, they do not select everyone...

aldershot

Thank you for the helpful advice.

Just for clarity, I was sharing the flat with Mrs whilst the work was being done. I think there is enough ambiguity to use August but as I said, the difference is not that large if the 6 months has to go the other way as there is 23 years of PPR anyway.

booksurr

aldershot wrote: »

Thank you for the helpful advice.

Just for clarity, I was sharing the flat with Mrs whilst the work was being done. I think there is enough ambiguity to use August but as I said, the difference is not that large if the 6 months has to go the other way as there is 23 years of PPR anyway.

indeed, as you say with such an unequivocal period of PPR from 1991 it is unlikely that she will end up having to pay any tax

if she does not have anything to pay, and is not already required to submit a tax return, she will not have to report the CGT calculation to HMRC anyway

personally I'd do it by the prudent method and use March 14 as the cut off.

Care to share some figures so we can play with numbers and see if she will have a liability?

aldershot

Depending on the exact dates in the months, and assuming a sale in mid Dec 17, then I think the total ownership is 316 months. Assuming Mar14 change gives 27 months of liability and Aug14, 22 months. Total gain is potentially around £350k. Case 1 gives a chargeable gain of £24367 and case 2, £29905. Taking off the allowance of £11,100 and charging at 18% give a bill of £2388 or £3385. Whilst £1000 is not given away lightly, it's not going to materially going to change our lifestyle if we're banking £350k.

Please check figures!

booksurr

you bought the new house in March 2014 so the old place ceased at Feb 14 otherwise your cutoff point is wrong (HMRC would prefer the calculation is done in days for that reason, but nearly everyone uses months)

Mar 14 to sold in Dec 17 is 46 months - final 18 = 28 months

I'll assume you have not made the same mistake re length of ownership and that it is 316 in total

I'll also assume 350k is the actual gain rather than the final selling price? Even for Aldershot, 350k gain on the purchase price of a flat after 26 years is some flat given the most expensive flat currently for sale "in" Aldershit is on the market for £250k. You have to move to Farnborough to break 300k and to somewhere nice like Farnham to break 350k

350 x 28/316 = 31,012

aldershot

The flat is in West London. My house was in Aldershot (slightly harsh typo (hope it is a typo) above!). It was a good place to live for best part of 25 years.

When it comes to it, we'll calc in days but I has been useful to make sure I haven't made a huge calc error.