Tenants in Common implications for CGT on property sale

jimbob3

hi guys, can anyone answer this query about tenants in common implications for CGT on a property sale?

I bought a property in Dec 2010 in my own name and moved in with my partner who I later married in 2013. In Nov 2016 we bought and moved a new home in joint ownership but decided to keep the old property as a rental. At this time I changed the ownership of the property to be in joint ownership as “tenants in common” giving my wife a 99% share so that she could pay the tax on the rental income as a lower rate tax payer. I also submitted the “beneficial interests in joint property” form 17 stating my wifes 99% share.

We are now looking to sell the property to complete in Sept of this year for £90K more than it was purchased for. I believe the CGT gain is reduced by the proportion of time lived there plus 18 months. I/we will have owned the property for 106 months, and lived there for 72 so the relief should be (72+18)/106 = 84.9% giving a gain of £13.6K which is slightly over the threshold.

Prior to changing the ownership of the property I spoke to someone at HMRC who advised me that if I changed the ownership this gain could be split evenly between me and my wife because she had lived there for the same amount of time even though I had sole ownership at the time we moved in, is this correct and does the fact that she currently has a 99% interest have any implications for the CGT on the sale?

thanks!

00ec25

luckily for you there are several areas where you have not understood the full context of the info you are using. Overall there will be NO TAX to pay

lets deal with this bit of nonsense first

jimbob3 wrote: »

Prior to changing the ownership of the property I spoke to someone at HMRC who advised me that if I changed the ownership this gain could be split evenly between me and my wife because she had lived there for the same amount of time even though I had sole ownership at the time we moved in, is this correct and does the fact that she currently has a 99% interest have any implications for the CGT on the sale?

this stands or falls on whether your wife was living in the property at the point in time she became an owner of it.

if that is true then she inherits your claim to PRR from your purchase date
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64950

the above is totally unconnected with the fact she acquires the property at your original purchase cost (whether she lived there or not) simply by virtue of the fact you are married at the point of transfer
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg22200

Therefore, if true, she:
a) acquired the property at your original purchase cost
b) has a claim to PRR
c) she acquired a 99% share of the property so her acquisition cost is Dec 2010 price paid by you x 99% = her "base" cost

jimbob3 wrote: »

We are now looking to sell the property to complete in Sept of this year for £90K more than it was purchased for.

you continue to own as TIC, therefore:

your share of the gain is 90k x 1% = £900
her share of the gain is 90k x 99% = £89,100

jimbob3 wrote: »

I believe the CGT gain is reduced by the proportion of time lived there plus 18 months. I/we will have owned the property for 106 months, and lived there for 72 so the relief should be (72+18)/106 = 84.9% giving a gain of £13.6K which is slightly over the threshold.

you have gone astray in that calculation

YOUR CGT liability
your share of the gain = £900
your PRR = £900 x (72+18)/106 = £764
your letting relief = LOWEST OF:
- PRR: £764
- gain in let period: £900 x 16/106 = £136
- max allowed £40,000

net taxable gain: £900 - 764 - 136 = £0
YOU pay no tax

HER CGT liability
Her share of the gain = £89,100
her PRR = £89,100 x (72+18)/106 = £75,651
Her letting relief = LOWEST OF:
- PRR: £75,651
- gain in let period: £89,100 x 16/106 = £13,449
- max allowed £40,000

net taxable gain: £89,100 - 75,651 - 13,449 = £0
she has no tax to pay

NOTE
neither of you have even touched your respective CGT allowance of £12,000 each

dimbo61

Speak to a solicitor as you can change back to 50/50 and then both have £12,000 CGT allowance I Believe !

00ec25

dimbo61 wrote: »

Speak to a solicitor as you can change back to 50/50 and then both have £12,000 CGT allowance I Believe !

this close to selling up that would be very foolish as HMRC would regard it as a deliberate avoidance and therefore directly inside "settlements legislation" which enables them to completely ignore whatever you have done if it was done purely to reduce a tax liability

if OP and wife wish to do that , they would need to:
a) do a new form 17
b) pay income tax on the rental profit based on a 50/50 split

that would then give some (not guaranteed) credence to the subsequent sale using 50/50 shares since the income tax liability was to their disadvantage compared to the advantage for CGT

never, ever, change ownership when a property is already being marketed for sale. That is a red flag for HMRC

jimbob3

00ec25 wrote: »

luckily for you there are several areas where you have not understood the full context of the info you are using. Overall there will be NO TAX to pay

lets deal with this bit of nonsense first

this stands or falls on whether your wife was living in the property at the point in time she became an owner of it.

if that is true then she inherits your claim to PRR from your purchase date
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64950

the above is totally unconnected with the fact she acquires the property at your original purchase cost (whether she lived there or not) simply by virtue of the fact you are married at the point of transfer
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg22200

Therefore, if true, she:
a) acquired the property at your original purchase cost
b) has a claim to PRR
c) she acquired a 99% share of the property so her acquisition cost is Dec 2010 price paid by you x 99% = her "base" cost

you continue to own as TIC, therefore:

your share of the gain is 90k x 1% = £900
her share of the gain is 90k x 99% = £89,100

you have gone astray in that calculation

YOUR CGT liability
your share of the gain = £900
your PRR = £900 x (72+18)/106 = £764
your letting relief = LOWEST OF:
- PRR: £764
- gain in let period: £900 x 16/106 = £136
- max allowed £40,000

net taxable gain: £900 - 764 - 136 = £0
YOU pay no tax

HER CGT liability
Her share of the gain = £89,100
her PRR = £89,100 x (72+18)/106 = £75,651
Her letting relief = LOWEST OF:
- PRR: £75,651
- gain in let period: £89,100 x 16/106 = £13,449
- max allowed £40,000

net taxable gain: £89,100 - 75,651 - 13,449 = £0
she has no tax to pay

NOTE
neither of you have even touched your respective CGT allowance of £12,000 each

thanks for such a detailed answer!



The title was changed as part of putting the property onto the BTL mortgage which occured just before we moved out, the solicitors checked this at the time as there was no SDLT to pay. Yes we both have full CGT allowance.


I don't quite understand your calculation:
Her letting relief = LOWEST OF:
- PRR: £75,651
- gain in let period: £89,100 x 16/106 = £13,449
- max allowed £40,000

net taxable gain: £89,100 - 75,651 - 13,449 = £0


why is the gain in the let period subtracted?



thanks!

00ec25

jimbob3 wrote: »

why is the gain in the let period subtracted?

as i said, you have not understood the full context of the rules, letting relief is available to each owner where they were an owner during a let period of what had at a point in time been their respective main residence:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64721

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64735

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64738

jimbob3

never mind I understand the calculation now. So do I need to justify to HMRC why there is no tax to pay or will that not be necessary?

00ec25

jimbob3 wrote: »

never mind I understand the calculation now. So do I need to justify to HMRC why there is no tax to pay or will that not be necessary?

never mind, look it up yourself
there is a .Gov page that details exactly when you do and do not need to report gains, and how to do so

jimbob3

ok thanks for all the info you've been very helpful!

telmanchicks

Hi
Would be grateful if someone can throw some light on the topic of "joint tenants in life time where the right of survivorship applies. " I m planing to leave my house to my daughter so I thought I can change it from sole ownership to joint tenants, not sure of the implications. But I feel this option is better then making a trust or will. Also there is so much info on will and trust! I wish for simple and effective and safe method. Would be grateful for some advice.