Owning 2 houses for a while - capital gains tax question

Workerbee999

We have lived in our current house in England for 12 years. It’s mortgage free. It’s in my husbands name.

We are now in the process of buying a house in Wales which will be our “forever home” once we retire in approx 3 years. This will be in my name with a mortgage in my name. Until we retire we are keeping both houses for location convenience although the property in Wales will be our primary residence - all our documentation will move to there and we will be spending enough time in it to meet requirements to avoid it being a “second home” under the Welsh council tax rules - I mainly work from home. I know I will have to initially pay the higher rate SDLT but we will sell our current home within the required 3 year period in order to get a refund of the extra stamp duty. We will also clear the mortgage at this point ( slight nervousness about a house price crash in the next 3 years, but equally could keep going up, who knows?)

There are no marriage issues and all finances are shared, the reason our current house is in my husbands name was due to a bit of nervousness on my part about being a stat director at the time. The new one is in my name as I can get the mortgage on my own and it avoids the complications of it being a second home for my husband. Eventually when we have just the one with no mortgage it will be in both our names. We will sort wills at the same time, we have one adult child who would be the beneficiary.

I would welcome any feedback on anything I might have missed for these parts but my main questions is about capital gains tax implications. I think as a married couple we can only have one primary residence even if they are in different names? As that would become the new house once we buy it, I’m assuming our current house would become liable for CGT on any growth from some point? (As soon as I buy the other one?) and would only have one persons allowance against it. If so, what valuation is it based on for what it is worth now rather than when we sell it in 3 years? Do we need some estate agent valuations to prove it now? Or is some sort of formula used? 

I don’t t want to fall into any pitfalls in this area so very thankful for any input.

 Thanks 

Slithery

You don't get a valuation done now. The gain is the total gain between when you bought the property and when you sell it - but tax is only due pro-rata on the time it wasn't your main residence (minus any allowances).

theartfullodger

Depends on rules in force when you sell either.  Even Rishi doesn't know what they'll be, but I think the tax is going to get more painful to pay for Brex**it, Covid, Ukraine etc...

Workerbee999

Slithery said:

You don't get a valuation done now. The gain is the total gain between when you bought the property and when you sell it - but tax is only due pro-rata on the time it wasn't your main residence (minus any allowances).

We both owned the house for the first 9 years we have been in it, and then 3 years after transferring it all to my husband. The next 3 years would be just his too. Having just researched it, I can see that as this is exempt transfers between spouses the clock starts when we bought it together and ends when he sells it regardless of how we have owned it in between. I understand how the gain is prorated now, including the last 9 months of ownership and I have done a dummy calculation of the gain on the HMRC website (based on a pure guess of value to get a feel for it) 

Does this mean that at some point in the future, after I own the new house with the mortgage, our old home can be transferred back partially into my name so we have double CGT allowances in the year we sell it ( as it is an exempt transfer between spouses) and we each separately calculate the gain on our half regardless of how long we have each owned proportions of it?

And if we did do that, would I be liable for higher rate stamp duty on gaining 50% of my old house again? ( although when I transferred it to him we were told because it is between spouses and there is no mortgage, there is no stamp duty payable at  all) - we didn’t own any other property at that point though.

thanks

p00hsticks

Workerbee999 said:

Until we retire we are keeping both houses for location convenience although the property in Wales will be our primary residence - all our documentation will move to there and we will be spending enough time in it to meet requirements to avoid it being a “second home” under the Welsh council tax rules - I mainly work from home.

I think as a married couple we can only have one primary residence even if they are in different names? As that would become the new house once we buy it, I’m assuming our current house would become liable for CGT on any growth from some point?

 Thanks 

To avoid any ambiguity about which is to be considered your main residence until you sell the existing one, you can nominate which it is to be to HMRC.

This needs to be done within two years of any change in the combination of proerties you own.

Note that - as I understand it - the nomination needs to be supported by the facts (which from the sound of it will not be a problem in your case). So things like being on the electoral roll, HMRC having that as your contact address, it being the address on your driving licence etc .

https://www.gov.uk/tax-sell-home/nominating-a-home

grumiofoundation

Although commonly (and erroneously!) used interchangeably you do not pay stamp duty in wales but land transaction tax (LTT)

For additional property LTT is +4% rather than the +3% for SDLT