Capital Gains Tax fiasco

cheerful19

My husband (boyfriend at the time) bought a flat for £500K four years ago and my name went on the deeds and mortgage, as it helped get the mortgage due to me having built up a big equity in my house over 20 years. He paid the full deposit (£200K) and paid the mortgage payments himself, except for a couple of years I lived in it and paid half the mortgage, as well as some white goods, carpets, etc...
Now we have married and the flat has been sold for a profit of £130K, which he is keeping in full. He considered the flat his rather than ours (to safeguard for his kids from previous relationship)
My question is: Do I have to pay CGT on the flat sale because my name was on the deeds/mortgage? He doesnt have to because he qualifies fully for PRR but I dont. If CGT is due, he will pay for that on my behalf, as obviously I have not received the gain myself. Furthermore, I believe I may have lost tens of thousands on PRR on my main home during the period I lived in his flat, because I let my home out and Letting Relief is being scrapped.

In hindsight, we shouldnt have put my name on the flat. He would have kept his full PRR on the flat, and I would have kept mine on my house. Seemed a good idea at the time but the full implications only hit us after the recent property tax changes etc.

By the way, in case it has an impact, I must explain that my husband is using the sale proceeds from the flat, inc the gain, to ‘buy into’ my original house, where we now live. We are drafting a Deed of Trust to reflect his contribution as a share of the market value of the house.

Look forward to people’s views on this. I would particularly like to hear from 00ec25, as one of his posts said tax is paid by the beneficial owners, not the legal title holder.

BoGoF

I think I saw the thread you mean about beneficial interest but that may have been slightly different in that it was father/daughter and you are (now) a married couple. To further complicate the position a married couple can only have one private residence between them.

The crux of the matter may be when did you marry?

I'm sure 00ec25 will be only with their wisdom but the advice may well be get professional help.

Pennywise

anasmartin wrote: »

In hindsight, we shouldnt have put my name on the flat. He would have kept his full PRR on the flat, and I would have kept mine on my house. Seemed a good idea at the time but the full implications only hit us after the recent property tax changes etc.

No, you wouldn't have been eligible for PPR on your home for the years you rented it out, so on that aspect, you've not lost out. You'd only have kept full PPR if you'd lived in it as your home throughout your ownership. (Ignoring exemption for last 18 months, soon to be reduced!). Whether or not you were joint owner of your husband's house doesn't make any difference whatsoever to the CGT/PPR position on your former home.

silvercar

...Now we have married and the flat has been sold for a profit of £130K, which he is keeping in full.....

...I must explain that my husband is using the sale proceeds from the flat, inc the gain, to ‘buy into’ my original house, where we now live.......

So he is taking all the profit on 'his' flat to give to you to buy into 'your' house. Is that the same as you sharing the proceeds of the sale of the flat and putting the house in joint names to reflect that you are married?

If these are the sort of discussions you have when you are happily married, I hope you don't ever split!

----

If you give him a part share of your house now, that will mean that part share will always have full PPR, as he is only getting the share when it is his PPR. If you weren't married that would trigger a potential CGT liability as you are transferring a share of the equity that doesn't have full CGT relief due to letting. I would be interested in an expert's view on this, as theoretically you could gift 99% of it to avoid any future CGT for the time it was let.

cheerful19

Thanks Silvercar. Much nicer way to look at it, you are absolutely right. Its just that once bitten, twice shy, as the old saying goes. And with different kids etc, there is so much baggage/complication!
Are you saying that the date of transfer to him counts as day 1 of ownership for his share (i.e. clock starts ticking then, rather than ‘inheriting’ my original purchase date?)

silvercar

cheerful19 wrote: »

Thanks Silvercar. Much nicer way to look at it, you are absolutely right. Its just that once bitten, twice shy, as the old saying goes. And with different kids etc, there is so much baggage/complication!
Are you saying that the date of transfer to him counts as day 1 of ownership for his share (i.e. clock starts ticking then, rather than ‘inheriting’ my original purchase date?)

I'm asking the question, I don't know the answer.

00ec25

you are married.
a married couple are deemed to live together (unless they can demonstrate they have physically separated - ie are heading to divorce) and can only have ONE property that gets PRR, which must be the same property for both of them, ie. you cannot have a his n' hers like you seem to think.

where have you been living since getting married as that is the property with PRR on it, whether you are registered as the legal owner of it or not?

further progress cannot be made until you clarify the living arrangements:
house of 20 years?: but has been let, and was not lived in by you whilst in the flat. Date of marriage also affects it if it was not the marital main residence since then.

flat: 4 years old, of which you lived there for 2, but was that with him as the marital main residence or not?

antrobus

cheerful19 wrote: »

...

In hindsight, we shouldnt have put my name on the flat. He would have kept his full PRR on the flat, and I would have kept mine on my house....

Err, no.

As 00ec25 states. You are married, You only have one PPR.

The principal private residence (PPR) rules for CGT purposes include a provision for married couples. It states that there can only be one sole or main residence for both spouses (or civil partners) so long as they live together (TCGA 1992, s 222(6)).

https://www.bloomsburytaxonline.com/private-residence-relief-married-couples-living-together-for-cgt-purposes/

In any event, it's a bit tricky to claim PRR on a property you've let out.:)

cheerful19

Obviously I didnt explain well enough. I must have muddled the waters giving too much detail. The basic fact is that we were not married when the flat was bought. Out of 4 years ownership, 3 yrs and 8 months we were not married. We were only married the last four months of ownership but those last four months we didnt live in it as we moved into my old house, as our marital home
So out of 4 yrs ownership, he lived there from the start but I only lived there 2 yrs, unmarried.
Which is why I think I may have to pay CGT, despite not having made the gain myself, because it wasnt my main residence for 2 years. My question was a result of reading about two brothers, one who had the legal title/mortgage and the other not but, because he got the proceeds of rent, etc, was the one who had to pay the tax.

antrobus

cheerful19 wrote: »

Obviously I didnt explain well enough. I must have muddled the waters giving too much detail. The basic fact is that we were not married when the flat was bought. Out of 4 years ownership, 3 yrs and 8 months we were not married. We were only married the last four months of ownership but those last four months we didnt live in it as we moved into my old house, as our marital home
So out of 4 yrs ownership, he lived there from the start but I only lived there 2 yrs, unmarried.

The basic fact is that you bought the flat together. 50% of the gain of £130K is yours, only half of that is taxable because it was your PPR for 2 out of the 4 years, You have a CGT allowance of £11,700. If you are a basic rate taxpayer with no other gains, there will be around £3,700 to pay.

Yes, it is sometimes possible to argue that beneficial ownership is other than 50:50. But you don't appear to have taken any steps to document that assertion.

00ec25

you legally own 2 properties

we will take as read that you did not make a nomination to HMRC as to which was your main home so it is now a matter of fact which one was your main home whilst unmarried
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64545

you were not married whilst living in the flat, but that does not alter the matter of fact test

As Antrobus says, the default is 50/50 joint ownership unless you can prove otherwise. So you are liable to CGT on the (assumed default) 50% share of the flat because there is (as Antrobus says above) no evidence to show you do not have a beneficial interest. CGT is based on beneficial interest, (overly simplified: who paid what, and who gets what) and by your own admission you part paid the mortgage so would struggle to show no interest even if husband has physically taken all the money

how much tax you will actually pay depends on the precise timeline and values. Subject to the matter of facts test, you have a claim to private residence relief for the "2 years" you lived there. You need to also check if that period overlaps the final 18 months of your ownership and, as applic, adjust your PRR claim to be actual occupation + any deemed occupancy period remaining from the final 18

overall therefore, adding in your CGT allowance deduction, it is somewhat unlikely you will have a net taxable gain and thus have to pay any CGT unless your share of the gain is large

obviously, having claimed PRR on the flat, you will lose the same period of actual occupation in respect of the house, which therefore now will have a period when it is liable to CGT, and you will need to do the same calculation when you sell the house - that applies even though the house has been your marital main home since the date of your marriage 4 months before selling the flat. The house will be liable to CGT and you cannot change that

the calculation of CGT on the sale of the house will also be complicated by the fact your husband will be deemed to have acquired his share at your purchase cost 20 years ago, not what he pays you now to "buy into it".[STRIKE] Your husband will not however get PRR for the period between your purchase and his moving in, so his share of the gain will only be partially relieved.[/STRIKE]

overall you should go pay a tax adviser to set you straight as you have, as you say, a fiasco