Help, capital gains tax after marriage

PaulOfLondon

Hello. Looking for a bit of guidance and advice on potential CGT, although I suspect I should really see a tax adviser about this.

My partner and I have been together for 17 years, I owned my own house before we met (since 1996) ]and lived in it for a number of years. My partner also came to live with me for a few years too after she was renting in London.

In 2007 my partner needed to move closer to her new job and wanted something to show for all her hard work and so she ended up buying a house of her own on the other side of London. Without any real plan for my own house we eventually moved over to her house and flitted between mine and hers for a while until my mum and dad moved in for a few months after they sold theirs and were waiting for their new house purchase to go through.

I think they left in 2008 and no rent was received.

After that my property was left empty and has remained empty pretty much since, except for a brief spell when a family friend was allowed to use it for about 9 months in 2012.

It's been empty since mainly due to needing a little work to get up to scratch to rent, work and life commitments have just got in the way of getting anything done until now.

My partner and I are getting married in June, in Spain, and are due to have a registry wedding in the UK sometime soon...

Its been bothering me about what would happen to our respective houses and equity we have both accrued in the last few years. Id always planned on renting the house but obviously haven't so far so recently I've thought maybe selling it would be best.

My partner and I had thought about selling both and but buying a bigger new one back nearer friends and family the other side of London. I'd always thought it was best we keep our finances separate so neither of us has contributed towards the others property.

My partner now has a long term illness/disability that would probably prevent her getting on another mortgage (although she is on an income protection and technically still employed) so I'm thinking what to do now for the best and recently the thought of Capital Gains Tax has cropped up. I think I'd always assumed my house would remain my primary residence if I wanted to sell it as I didn't own another but having looked into it briefly I'm now suspecting that is not correct.

Could anyone help give me advice on what might be the best course of action for me? I do have the option at the moment to delay the UK marriage element and was wondering whether it is worth me moving back in before we do marry in the hope that would help solve the issue of capital gains tax - I understand we would have 18 months to sell our houses tax free once married (dropping to 9 month in 2020?).

I'd still like to rent ideally but the desire to keep as much of the money tied into our properties is overwhelming. I dont know much about tax for property sales or rental and have no-one in a similar situation to ask. We have both done well with the property so have considerable equity - mine is 3 mins from a crossrail station and has approx 260k equity and hers is in a nice part of London and working hard to over pay her mortgage means she has about 400k equity.

I hope that's enough info for anyone with a bit of knowledge about this area to give a reasonable assessment and advice. I appreciate its not a standard scenario and am looking to see an advisor once I can find someone. Many thanks!

00ec25

PaulOfLondon wrote: »

Hello. Looking for a bit of guidance and advice on potential CGT, although I suspect I should really see a tax adviser about this.

key fact for CGT, it is not just about ownership (although of course you taxed on what you own) but crucially it is heavily determined by what use is made of the property and who occupies it and when. That means CGT liability is based on periods when a property may be exempt and periods when it is liable. Those periods convert to the % of the total time you owned it for the tax calculation.

My partner and I have been together for 17 years, I owned my own house before we met (since 1996) ]and lived in it for a number of years. My partner also came to live with me for a few years too after she was renting in London. she did not own it so her occupation is irrelevant in terms of PRR (see fuller details below) but at the same time it means her own property was no longer in her primary occupation and so that becomes liable to CGT.

In 2007 my partner needed to move closer to her new job and wanted something to show for all her hard work and so she ended up buying a house of her own on the other side of London. so that became her Principal Private Residence (PPR) Without any real plan for my own house we eventually moved over to her house and flitted between mine and hers for a while this pattern could cause an issue since which property was being used as the respective person's PPR given it appears to fluctuate until my mum and dad moved in for a few months after they sold theirs and were waiting for their new house purchase to go through. so that is a certainty - it was no longer your PPR at the point in time. It was your parents. Upshot? It would be classed as your cgt liable property for that period

I think they left in 2008 and no rent was received.

After that my property was left empty and has remained empty pretty much since, except for a brief spell when a family friend was allowed to use it for about 9 months in 2012. so , not your PPR and therefore liable for CGT for sure for that entire timespan

It's been empty since mainly due to needing a little work to get up to scratch to rent, work and life commitments have just got in the way of getting anything done until now.

My partner and I are getting married in June, in Spain, and are due to have a registry wedding in the UK sometime soon...

Its been bothering me about what would happen to our respective houses and equity we have both accrued in the last few years. Id always planned on renting the house but obviously haven't so far so recently I've thought maybe selling it would be best.

My partner and I had thought about selling both and but buying a bigger new one back nearer friends and family the other side of London. I'd always thought it was best we keep our finances separate so neither of us has contributed towards the others property. who contributed to what is a matter for the divorce court.

My partner now has a long term illness/disability that would probably prevent her getting on another mortgage (although she is on an income protection and technically still employed) so I'm thinking what to do now for the best and recently the thought of Capital Gains Tax has cropped up. I think I'd always assumed my house would remain my primary residence no, it cannot be your PPR for the entire time you owned it as set above if I wanted to sell it as I didn't own another but having looked into it briefly I'm now suspecting that is not correct. indeed, that would be incorrect

Could anyone help give me advice on what might be the best course of action for me? I do have the option at the moment to delay the UK marriage element and was wondering whether it is worth me moving back in before we do marry in the hope that would help solve the issue of capital gains tax - I understand we would have 18 months to sell our houses tax free once married (dropping to 9 month in 2020?).

I'd still like to rent ideally but the desire to keep as much of the money tied into our properties is overwhelming. I dont know much about tax for property sales or rental and have no-one in a similar situation to ask. We have both done well with the property so have considerable equity - mine is 3 mins from a crossrail station and has approx 260k equity and hers is in a nice part of London and working hard to over pay her mortgage means she has about 400k equity.

I hope that's enough info for anyone with a bit of knowledge about this area to give a reasonable assessment and advice. I appreciate its not a standard scenario and am looking to see an advisor once I can find someone. Many thanks!

the single most important thing to understand about property CGT is you are liable if it was not continuously your main home for the entire time you owned it. Any breaks and you have a liability for that 5 of the time represented by the non PPR.

moving back in is irrelevant if you do not intend to use it as your main home for more than 18 months before selling .

it was once your main home, therefore the final 18 months are always exempt, whether you live there or not.

marriage will have limited impact on you since your property ceased to be your main home in 2008 if I read your timeline correctly. Once married your PPR will be where ever you live with her. Delaying marriage for tax reasons smacks of a marriage that should not be taking place in the first place as it has no foundations and appears to be done for financial reasons not romantic reasons. Marriage will have no impact on a property where you already have the right to claim PRR anyway unless you plan to make it the marital main home in which you will continuously live for more than 18 months before selling it.

PRR
the property was your main home
for that period it gets Private Residence Relief, ie exempt from CGT.
you have owned it since 1996
you ceased to live in it since 2008 (and have a grey period before then of moving between 2 properties)

as a vague approximation, taking the above timeline literally, ownership period 23 years. first 12 years = PPR so add final 18 months = 13.5 years = 58%
Therefore 42% is liable

simple example: gain in value 1995 to 2019 = £300k
exempt 300 x 58% =174
liable 300 x 42% = 126k
taxable gain 126k - personal CGT allowance (11.7) = 114.3k taxable at 18% and (the majority of it) at 28%

yes go see an accountant but be clear on your timeline and who lived where and when so the accountant has a vague chance of producing a calculation that would survive scrutiny if HMRC ever bothered to look

PaulOfLondon

Thank you for your reply 00ec25, that is very helpful.

I had always planned on returning to my house, are you saying that if we did move back in for over 18 months CGT wouldn't need to be looked at, or would i still apply regardless? That's the bit I don't understand - if we made my house our primary residence again does that reset everything or just means it generally won't be factored in? Do solicitors ask about living arrangements when selling - I've never sold a house before.

On a side note, what would renting do to this scenario if I decided to rent it out from now on? Obviously CGT would apply regardless but is there any other considerations I need to e aware of? I don't really know what to do now for the best

Also just want to clarify about the wedding, its being done for romantic reasons I assure you but my partner opted for Spain (bit of a surprise to me) which will only be a blessing so we have the option of delaying the formalities in the UK. I think we would be silly to not explore all our options for our finances given that she would really like to buy a new house together using our combined equity and we would need as much as possible since her mortgage isn't portable, her health means she probably wont get a new mortgage, etc.

p00hsticks

PaulOfLondon wrote: »

Thank you for your reply 00ec25, that is very helpful.

I had always planned on returning to my house, are you saying that if we did move back in for over 18 months CGT wouldn't need to be looked at, or would i still apply regardless? That's the bit I don't understand - if we made my house our primary residence again does that reset everything or just means it generally won't be factored in?
.

No, it doesn't 'reset everything' - if there have been periods where you've not been living in the house as your main residence, then you are potentially liably to CGT, regardless of whether you are currently living in it or not.

00ec25

PaulOfLondon wrote: »

Thank you for your reply 00ec25, that is very helpful.

I had always planned on returning to my house, are you saying that if we did move back in for over 18 months CGT wouldn't need to be looked at, or would i still apply regardless? That's the bit I don't understand - if we made my house our primary residence again does that reset everything or just means it generally won't be factored in? Do solicitors ask about living arrangements when selling - I've never sold a house before. as I tried to explain above, if a property is not your main home at any point in time it will always be liable for CGT for that % of the total ownership period. It is the most common misconception people make thinking that its my home now so it becomes exempt forever. IT DOES NOT there will always be a % that remains liable

On a side note, what would renting do to this scenario if I decided to rent it out from now on? Obviously CGT would apply regardless but is there any other considerations I need to e aware of? I don't really know what to do now for the best


Also just want to clarify about the wedding, its being done for romantic reasons I assure you but my partner opted for Spain (bit of a surprise to me) which will only be a blessing so we have the option of delaying the formalities in the UK. I think we would be silly to not explore all our options for our finances given that she would really like to buy a new house together using our combined equity and we would need as much as possible since her mortgage isn't portable, her health means she probably wont get a new mortgage, etc.

letting ("renting out") would mean you have access to letting relief because it was once your main home. Letting relief is capped - see this explanation: https://forums.moneysavingexpert.com/showpost.php?p=73621764&postcount=2

there are countless posts on here "discussing" the logic of becoming a landlord when you never intended to set out in life with that objective, have no idea what are doing, and little regard for how you treat tenants, particularly where it was previously your home and thus has emotional "ties". It is the tenants home, and they can treat how they want (within reason). Deciding to let a property is a much bigger decision than I want some extra money

re marriage - it simply has to be UK legally recognised (I have no idea what that means if done overseas). The implications are straightforward:
a) the married couple have one, and only one, main residence for PRR purposes which is the same property for both of them
b) the married couple can change the ownership ratios between themselves as often m as they like and for any % they like without any tax implications at all. HOWEVER, never move from joint to sole ownership (or sole to joint) on a property where there is a PRR claim by the person transferring it as once a person ceases to be an owner they can never get the claim back again and that can cost thousands in extra tax from lost relief.
c) where a property is let and jointly owned there are some admin procedures you must go through if altering the share of rental profits between the 2 people (ie: Form 17 and declaration of trust each time),

silvercar

00ec25 gave good advice, as usual.

Just to add the government is currently consulting onthe transfer of PPR between spouses. If it goes ahead, acquiring ownership from a spouse will mean that you also acquire PPR at the same time.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790479/CGT_PRR_changes_to_ancillary_reliefs.pdf

Section 7 goes into detail.