CGT - PRR rules for newly married couple selling property

beanie_again

Hi - hopefully someone can help to clarify! I purchased my home in July 2006, and spent many years' living happily in the house. I met someone in 2018, and after a whirlwind romance we married on the 17th October 2020 (during the pandemic!).

We put my house on the market In January 2021, and long story short - after 4 sales fell through prolonged by COVID19, we are due to complete in February 2022 and put the funds towards a new home together (selling my wife's property this year, or giving the proceeds of the sale to her so we can be mortgage free until we find the right home).

My question is - did the rule for Private Residence Relief change in April 2020 change for married couples from 18 to 9 months to dispose of second homes (I have seen conflicting advice!), and if so how much Capital Gains Tax am I liable for? The purchase price was £156,000 and sale price is £260,000 - it has been my main residence throughout ownership, but married couples can have only one main residence.

It seems rather unfair that the ruling changed during a pandemic to penalise married couples! I have been paying full council tax on the property from purchase to date - and has not been rented / a business / is less than 5,000 square metres / not purchased to make a gain / or otherwise.

Thanks in advance!

Paul

[Deleted User]

The rule did change but I don’t think that you have too much to worry about!

Owned house for 187 months. If still your main residence there is no CGT. If you left the property in January 2021 (not clear although you do say that it was your main residence throughout) you will have lived in it for 172 months and you can add 9 to that as it was your main residence at some point. So 181/187 of the gain of £104000 is exempt. That is 100663 leaving 3337 which is below your annual exemption of 12300 - and we have yet to include costs of selling!

Also - I think you are mixing up the changes in PPR rules with the rules for electing which house is the PPR when two are owned - you have two years so to do in which case you have no issues either.

https://www.mytipsandadvice.co.uk/2020-11/two-main-homes-what-to-consider-when-getting-married-UKTPTPAR_EU07070401

theoretica

I did the calculation a little differently - same result.

The complication of married couples only comes in from when you married in October 2020 - so about 16 months of your ownership.  Less the 9 months disregard = 7 months.

7/187 of the gain of £104000 = less than £4k so well under the capital gains threshold.

[Deleted User]

theoretica said:

I did the calculation a little differently - same result.

The complication of married couples only comes in from when you married in October 2020 - so about 16 months of your ownership.  Less the 9 months disregard = 7 months.

7/187 of the gain of £104000 = less than £4k so well under the capital gains threshold.

I think that your calculation has coincidentally come up with a close answer for the wrong reason. October 2020 doesn’t have anything to do with the disposal date which is February 2022. It simply starts the clock for the nomination of main residence.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64525

[Deleted User]

The op states:


‘My question is - did the rule for Private Residence Relief change in April 2020 change for married couples from 18 to 9 months to dispose of second homes (I have seen conflicting advice!),’

The addition to PPR period was reduced from 18 months to 9 months where the property was the main residence at some point. The period where one had to nominate a main residence, where more than one property was owned, was not.

beanie_again

Thanks everyone for your responses - you have put my mind at ease that I won't be facing a £25k tax bill like the government calculator said I would!

I had clearly misunderstood the way the tax is calculated, so thank you 😁

theoretica

[Deleted User] said:

theoretica said:

I did the calculation a little differently - same result.

The complication of married couples only comes in from when you married in October 2020 - so about 16 months of your ownership.  Less the 9 months disregard = 7 months.

7/187 of the gain of £104000 = less than £4k so well under the capital gains threshold.

I think that your calculation has coincidentally come up with a close answer for the wrong reason. October 2020 doesn’t have anything to do with the disposal date which is February 2022. It simply starts the clock for the nomination of main residence.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64525

Yes - but by nominating/considering the other residence as the main one from the date of marriage it may reduce any future complications when that one is eventually sold (there may not be any, but there is the potential it will be rented out for a while or something) and does so without a tax cost for this one.

Jeremy535897

You can only nominate a property as a main residence when, as a question of fact, more than one property is being used as a residence by one or both of the married couple. There is also the issue of the time limit of 2 years where no change in the interests held by either party has taken place.

[Deleted User]

Jeremy535897 said:

You can only nominate a property as a main residence when, as a question of fact, more than one property is being used as a residence by one or both of the married couple. There is also the issue of the time limit of 2 years where no change in the interests held by either party has taken place.

Yes - I am a little lost as to what the issue is here. There were two properties at the time of the marriage one of which is being sold within two years (this month). The other is being sold later this year. Perhaps I am missing something!

Jeremy535897

If both the new property, and the property to be sold "later this year", will be used as residences, it may be worthwhile considering whether to make an election to pick one of them (probably the new one, if the other one will be sold within a short time frame).

For completeness, the change from 18 months to 9 months didn't specifically penalise married couples. It penalised everyone.

[Deleted User]

Jeremy535897 said:

If both the new property, and the property to be sold "later this year", will be used as residences, it may be worthwhile considering whether to make an election to pick one of them (probably the new one, if the other one will be sold within a short time frame).

For completeness, the change from 18 months to 9 months didn't specifically penalise married couples. It penalised everyone.

Fair enough although it was my interpretation that the ‘new house’ was not being purchased until after the sale of the op’s wife’s house - ‘until we find the right home’.