CGT on second home

Grumpy_chap

Jeremy535897 said:

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] 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. 😊

This could be interesting.

My wife has a property she purchased in 1999.

She lived there until 2006, PPR.

It is now rented.

We had assumed that when the property is eventually sold, the CGT would fall to my wife as the property is only in her name.

If I interpret the above correctly, before selling, my wife could gift me 50% of the property, then we sell and get 2 lots of CGT  annual exemption.

Is that correct?

I guess, in the scheme of at least 15 years property growth, the two lots of annual CGT exemption or one will make little difference to the overall bill, but it will be better than nowt.  It is an academic question for now as we are not intending to sell in the near future.

[Deleted User]

Grumpy_chap said:

Jeremy535897 said:

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.

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. 😊

This could be interesting.

My wife has a property she purchased in 1999.

She lived there until 2006, PPR.

It is now rented.

We had assumed that when the property is eventually sold, the CGT would fall to my wife as the property is only in her name.

If I interpret the above correctly, before selling, my wife could gift me 50% of the property, then we sell and get 2 lots of CGT  annual exemption.

Is that correct?

I guess, in the scheme of at least 15 years property growth, the two lots of annual CGT exemption or one will make little difference to the overall bill, but it will be better than nowt.  It is an academic question for now as we are not intending to sell in the near future.

She CAN gift the property to you as you have suggested. However, this has come up on this forum many times. HMRC can challenge the transfer if the SOLE reason for it is simply to avoid CGT. I have experienced this with clients - others will tell HMRC where to put their challenge.  

So, to avoid this, I would recommend that this is done a reasonable period before sale, say a year. Obviously this will make you liable for half of the rental income for that time but if it is still worth it? Have you any remaining basic rate band, for example?

[Deleted User]

doe808 said:

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.

With respect, I think that you have ignored the basic point that both, in effect, acquired half of the house in 2000. Other than the fact that the property was transferred in 2009, nothing else matters regarding that transfer.

For both it is half proceeds 80000 less half cost (in 2000) 25000 less half costs of purchase less half costs of sale. Then the same PRR exemption is applied to both - 117/254.

Both have the same calculation. It is as if they bought it in joint names in 2000!

Jeremy535897

No. Her base cost is half the original cost (I assume £25,000 if husband paid £50,000). Her gross gain is therefore £55,000, less half of any costs paid by husband to buy the property in 2000.

117/254 of the gain is exempt, leaving 137/254 chargeable, which (using the figure of £55,000) is £29,665. The annual exemption, if available, of £12,300 leaves a net gain of £17,365, taxable at 18%/28%, depending on her income.

[Deleted User]

Jeremy535897 said:

No. Her base cost is half the original cost (I assume £25,000 if husband paid £50,000). Her gross gain is therefore £55,000, less half of any costs paid by husband to buy the property in 2000.

117/254 of the gain is exempt, leaving 137/254 chargeable, which (using the figure of £55,000) is £29,665. The annual exemption, if available, of £12,300 leaves a net gain of £17,365, taxable at 18%/28%, depending on her income.

Yes - I think that my last point sums it up. It is as if the house was purchased jointly for 50000 in 2000.

Jeremy535897

purdyoaten2 said:

Grumpy_chap said:

Jeremy535897 said:

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.

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. 😊

This could be interesting.

My wife has a property she purchased in 1999.

She lived there until 2006, PPR.

It is now rented.

We had assumed that when the property is eventually sold, the CGT would fall to my wife as the property is only in her name.

If I interpret the above correctly, before selling, my wife could gift me 50% of the property, then we sell and get 2 lots of CGT  annual exemption.

Is that correct?

I guess, in the scheme of at least 15 years property growth, the two lots of annual CGT exemption or one will make little difference to the overall bill, but it will be better than nowt.  It is an academic question for now as we are not intending to sell in the near future.

She CAN gift the property to you as you have suggested. However, this has come up on this forum many times. HMRC can challenge the transfer if the SOLE reason for it is simply to avoid CGT. I have experienced this with clients - others will tell HMRC where to put their challenge.  

So, to avoid this, I would recommend that this is done a reasonable period before sale, say a year. Obviously this will make you liable for half of the rental income for that time but if it is still worth it? Have you any remaining basic rate band, for example?

In my view, HMRC would be in grave difficulty challenging a transfer between spouses like this, if the property has not been marketed at the time of the gift. A successful challenge from HMRC is not likely to be founded on the fact that the sole reason for the transfer is to reduce capital gains tax, because they can't ever prove it, unless you do something stupid like paying all the proceeds of sale into your wife's bank account, or generally treating the property as if she still owns all of it (she still banks all the rent and pays all the expenses, for example), and even then their case is more likely to be founded on an argument that the gift was a sham. That's not to say that some eager beaver at HMRC won't try, which is why purdyoaten's suggestion that there is a good amount of time between the transfer and the sale is often made.

People may mention the GAAR (general anti-avoidance rule), but this is clearly not designed to deal with a simple gift between husband and wife:

"The GAAR only comes into operation when the course of action taken by the taxpayer aims to achieve a favourable tax result that Parliament did not anticipate when it introduced the tax rules in question and, critically, where that course of action cannot reasonably be regarded as reasonable." (Yes it really does say "reasonably be regarded as reasonable".)

HMRC are more likely to succeed in an argument that the gift is a gift of a share of the proceeds rather than a gift of a share of the property. Ensuring the gift takes place before any evidence of marketing it, let alone getting anywhere near a contract, should deal with this risk. From a cosmetic point of view, I would say that the donee (you) should receive some rent before the property is sold.

Grumpy_chap

[Deleted User] said:

Grumpy_chap said:

Jeremy535897 said:

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] 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. 😊

This could be interesting.

My wife has a property she purchased in 1999.

She lived there until 2006, PPR.

It is now rented.

We had assumed that when the property is eventually sold, the CGT would fall to my wife as the property is only in her name.

If I interpret the above correctly, before selling, my wife could gift me 50% of the property, then we sell and get 2 lots of CGT  annual exemption.

Is that correct?

I guess, in the scheme of at least 15 years property growth, the two lots of annual CGT exemption or one will make little difference to the overall bill, but it will be better than nowt.  It is an academic question for now as we are not intending to sell in the near future.

She CAN gift the property to you as you have suggested. However, this has come up on this forum many times. HMRC can challenge the transfer if the SOLE reason for it is simply to avoid CGT. I have experienced this with clients - others will tell HMRC where to put their challenge.  

So, to avoid this, I would recommend that this is done a reasonable period before sale, say a year. Obviously this will make you liable for half of the rental income for that time but if it is still worth it? Have you any remaining basic rate band, for example?

Thank you - we will bear the options in mind when we come to that.  Maybe, at retirement, it would be worth changing to split ownership to take advantage of lower rate bands.  Currently, the income is all to my wife and she is lower rate in any case.

Black_Cat2

Thanks guys, I read too much into it 😸

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

No. Her base cost is half the original cost (I assume £25,000 if husband paid £50,000). Her gross gain is therefore £55,000, less half of any costs paid by husband to buy the property in 2000.

117/254 of the gain is exempt, leaving 137/254 chargeable, which (using the figure of £55,000) is £29,665. The annual exemption, if available, of £12,300 leaves a net gain of £17,365, taxable at 18%/28%, depending on her income.

Yes - I think that my last point sums it up. It is as if the house was purchased jointly for 50000 in 2000.

Yes, our posts crossed.