CGT on second home

doe808

First time on this part of the forum, so please be gentle. 

Friends have asked me a CGT question- but struging myself to find the correct answer.

Friend bought a house valued at 50k back in 2000. Got married and in 2009, and a 50% share in the house was transfered to his wife for payment on a notional £1. They then rented it out for a bit further down the line.

Trying to asserting if starting point for the wifes calculaton is the value of the asset at the time of purchase, or the £1 paid (HMRC helpfullly refers to both the 'price paid' and 'the value of the property when you acquired it' at differnet points).

Thanks in advance.

[Deleted User]

Transfers between spouses are at ‘No Gain No Loss’. In effect the base cost for EACH is half the purchase price i.e. 25k. Similarly each is deemed to have owned a half share since 2000.

The £1 is irrelevant. 

https://www.gov.uk/capital-gains-tax/gifts

Jeremy535897

I am not sure why you say "friend bought a house valued at £50k". Assuming the purchase was from an unconnected person at arm's length, the price paid is the base cost. As purdyoaten says, following the transfer, the base cost is divided equally between husband and wife.

In working out the main residence relief available, the property will be treated as their main residence for the period it was occupied by the husband as his main residence, and from the date he bought it. See section 222(7) TCGA 1992.

[Deleted User]

Jeremy535897 said:

I am not sure why you say "friend bought a house valued at £50k". Assuming the purchase was from an unconnected person at arm's length, the price paid is the base cost. As purdyoaten says, following the transfer, the base cost is divided equally between husband and wife.

In working out the main residence relief available, the property will be treated as their main residence for the period it was occupied by the husband as his main residence, and from the date he bought it. See section 222(7) TCGA 1992.

I had mentioned the PPR but deleted it. Given the title of the thread I am not sure if it was ever a main residence - the op may clarify.

Jeremy535897

Yes, the line "they then rented it out a bit further down the line" could be clearer.

doe808

Apologies - yes main residence of the husband between 2000- 2009 (and together with the wife during 2009). Rented from late 2009 - 2021.

This is all really helpful, thanks.

Black_Cat2

Hiya, forgive me for jumping in on this post.  Just wanted to clarify the CGT for his wife on this?  Am I right in thinking she uses the year he bought the house and amount it was bought for in 2000 even though she didn't live there/get married until 2009?

I too am trying to get to grips with CGT and posted a thread here recently which I believe said I should take the year and date I got married as the starting point for calculating CGT.

https://forums.moneysavingexpert.com/discussion/6287564/help-with-cgt-calculation#latest

Jeremy535897

Section 222(7) TCGA 1992 says:

In this section and sections 222A to 226, “the period of ownership” where the individual has had different interests at different times shall be taken to begin from the first acquisition taken into account in arriving at the expenditure which under Chapter III of Part II is allowable as a deduction in the computation of the gain to which this section applies, and in the case of an individual living with his spouse or civil partner—

(a)if the one disposes of, or of his or her interest in, a dwelling-house or part of a dwelling-house to the other, and in particular if it passes on death to the other as legatee, the other’s period of ownership shall begin with the beginning of the period of ownership of the one making the disposal, and

(b)if paragraph (a) above applies, but the dwelling-house or part of a dwelling-house was not the only or main residence of both throughout the period of ownership of the one making the disposal, account shall be taken of any part of that period during which it was his only or main residence as if it was also that of the other.

[Deleted User]

doe808 said:

Apologies - yes main residence of the husband between 2000- 2009 (and together with the wife during 2009). Rented from late 2009 - 2021.

This is all really helpful, thanks.

So it is important to note that the wife will also, for the purposes of CGT, be deemed to have purchased half of the house in 2000 and lived in it for the same period as her husband. 

The English version of what Jeremy posted. 😊

[Deleted User]

Black_Cat2 said:

Hiya, forgive me for jumping in on this post.  Just wanted to clarify the CGT for his wife on this?  Am I right in thinking she uses the year he bought the house and amount it was bought for in 2000 even though she didn't live there/get married until 2009?

I too am trying to get to grips with CGT and posted a thread here recently which I believe said I should take the year and date I got married as the starting point for calculating CGT.

https://forums.moneysavingexpert.com/discussion/6287564/help-with-cgt-calculation#latest

The BIG difference on your other thread is that you were not married at the time of the transfer. 

Also the starting point was the date of transfer, not the date of marriage.

doe808

purdyoaten2 said:

doe808 said:

Apologies - yes main residence of the husband between 2000- 2009 (and together with the wife during 2009). Rented from late 2009 - 2021.

This is all really helpful, thanks.

So it is important to note that the wife will also, for the purposes of CGT, be deemed to have purchased half of the house in 2000 and lived in it for the same period as her husband. 

The English version of what Jeremy posted. 😊

Great thanks.

So my understanding is that the calculation is as follows for the wife:

(a) Take half the sale proceeds less the selling costs (say £80K), then subtract

(b) The market value of 50% of the property at the date it was transfered to her in 2009 (say £40k); add in

(c) Her acquisition costs at that time (say £1k); ignoring

(d) any improvements (none were undertaken).

= £41,000

Exemption:

Period of Owneship: June 2000 - August 2021 - 254 months

Period it was his Primary Residence: June 2000 - June 2009 - 108 months [add nine months] = 117 months, or 46%

46% of £41,000 = £18,860

CGT allowance= £12,300

Taxable amount =£3,394 (18% of £18,860)

Thanks again for all the help.