CGT: principal residence relief on a house we no longer occupy

[Deleted User]

2lateagain said:

I looked at the example linked above. In our case, we're not seeking to gain a tax advantage over and above that which any married couple would have as a result of joint ownership, we simply (perhaps too simply) didn't realise the need to formalise that joint ownership - "with all my worldly goods I thee endow", and all that.

The house is in your name. You have one capital gains allowance, one basic rate band. If it is transferred into joint names there will be two of each to utilise.

It appears that you you are have some belief that the house was in joint ownership but just not formalised?

2lateagain

[Deleted User] said: The house is in your name. You have one capital gains allowance, one basic rate band. If it is transferred into joint names there will be two of each to utilise.

I get that, thanks. My original query was whether transferring into joint names now would also transfer the benefit of relief from CGT for the time when the house was our main residence, given that it's no longer our main residence and what I inferred from CG64950. If I have understood correctly, PRR would be transferred. Please correct me if I'm wrong.
However, it has been suggested that transferring after a buyer has been found could/would be challenged by HMRC and we might end up losing my wife's share of PRR, which would more than offset the benefit of being able to use her tax allowances.
I wonder what is wrong with a transfer for the purpose of utilising both of our tax allowances: isn't it operating within the rules?

2lateagain

Pennywise said:

 . . .But you may well be too late as you should have transferred half to her earlier in the sale cycle as doing it too close to exchange of contracts could be challenged as artificial purely for tax avoidance.

What would be challenged here - the transfer itself, or my wife's entitlement to PRR and/or use of tax allowances? If the former, would it mean that the effect is to revert to the current position in which I'm the sole owner with full PRR for the qualifying period?

[Deleted User]

Nothing wrong at all. If the property had been placed into joint names before any intention to sell this would be regarded as good planning eg for IHT purposes, or potential letting out. All sound reasoning for putting one’s house in order. 

However, given that the property has been put up for sale and now has a buyer, what possible reason could there be to put it in joint names other than for the sole purpose of reducing your liability to tax? From the article I quoted:

“We are experiencing strong opposition from HMRC who contend that the gain should be returned in full by the transferee spouse on the basis that the primary motive for the transfer was to gain a tax advantage and, as such, should be ignored”

I repeat that there are some on this forum, including a retired tax inspector,  who do not necessarily agree that HMRC would win such a challenge but I have experienced it. Two experienced posters agree have alluded to this on this thread. My point remains that it could be challenged and the fact that your accountant has informed you that the transfer can take place immediately before the sale is alarming to me.

2lateagain

So, putting the property in joint names with a view to utilising both spouses' tax allowances is good planning - unless one decides to actually use those allowances, at which point it becomes tax avoidance? I'm not arguing, just trying to get my head around the logic.
Any thoughts on my previous post @7.39pm? Thanks.

[Deleted User]

I am not sure that I can better articulate that it is the timing that is most important. You appear to have made up your own mind - perhaps another poster can be of more assistance.

2lateagain

My last post coincided with your editing of yours, so I'm sorry if you think I'm not heeding your advice. On the contrary, I'm grateful for the insight you and others here have given. Thank you.

Jeremy535897

2lateagain said:

Pennywise said:

 . . .But you may well be too late as you should have transferred half to her earlier in the sale cycle as doing it too close to exchange of contracts could be challenged as artificial purely for tax avoidance.

What would be challenged here - the transfer itself, or my wife's entitlement to PRR and/or use of tax allowances? If the former, would it mean that the effect is to revert to the current position in which I'm the sole owner with full PRR for the qualifying period?

The challenge would be that you gave your wife the proceeds, rather than the share of the property. You would be treated as still owning the whole property and selling it. I have said several times there is no PRR issue, by the way. I personally believe HMRC would struggle to attack a properly done transfer of half the property before any contract for sale was drawn up, but you also have to have the stomach to take them on, if they raise the issue.

jimmo

You have been getting some extremely good advice on here. The big difficulty is that it is more to do with professional opinion than something set out in statute or case law. As a general rule professional advice is that the gift to your wife would best have been done before the house was put on the market, the longer before, the better. Clearly that has not been done and, no doubt, evidence of when the property was put on the market is readily available on the internet.

Opinions vary among professional tax advisers and among  HMRC staff about this so it is impossible to make any real judgement on whether HMRC might choose to look into your case but if they do you can be pretty confident that it will cost you a lot of money. It will either be tax or professional fees.

 

2lateagain said:

I looked at the example linked above. In our case, we're not seeking to gain a tax advantage over and above that which any married couple would have as a result of joint ownership, we simply (perhaps too simply) didn't realise the need to formalise that joint ownership - "with all my worldly goods I thee endow", and all that.

This is a reference to beneficial ownership as opposed to legal ownership. Beneficial ownership is a key issue in Capital Gains Tax but it is also an extremely complex issue. Outside of Tax opposing divorce lawyers can argue for months or even years on a single case and guess who pays for that.

In your case if HMRC don't accept your argument that your wife has been a beneficial owner you could easily find that your barrister is negotiating with HMRC's barrister. Is it worth going there for you?

 

I assume Purdyoaten2 is referring to me when he referred to a retired tax inspector and he is right. I don't think HMRC are likely to win many challenges on this. From memory, purdy actually won his cases but if hic clients had followed his advice they still would have been much better off.

However one thing is certain. Your accountant's advice to transfer the day before completion is fundamentally flawed unless it is proposed to exchange and complete on the same day.

The key date for Capital Gains Tax purposes is the date of exchange, not the date of completion.

 CG14260 - Capital Gains Manual - HMRC internal manual - GOV.UK (www.gov.uk)

Once you exchange contracts you will have disposed of the property and will be unable to gift or transfer an interest in the property to your wife. You will only be able to pass to he a share of your net (taxed) proceeds. 

2lateagain

Thanks again for the insight and advice. Perhaps I should say that my reporting of the accountant's advice is based on my recollection of a discussion we had a year ago, not on written advice, so it's possible that he said exchange rather than completion, though he certainly didn't impart any sense of urgency. Glad to have got that off my conscience.