Query re: capital gains & moving out of my property to live with partner

Rich1234a

Hi,

I wonder if anyone could shed any light on this query please?

I own my house outright.

I am considering moving 80 miles away to live with my partner who currently lives in rented accomodation.

We will consider buying a property together in that area, but I don't want to pay capital gains tax when i come to sell it as my house has increased in value significantly.

I feel like the options are:-

1) Rent out my house and buy a house with my partner with both of our names on the deeds of the new house - I think that if I do this I will end up paying capital gains tax on my house 'whenever' I sell it?

2) Rent out my house and my partner buys a house and I contribute to mortgage payments but don't put my name on the deeds - I think that if I do this I will still end up paying capital gains tax on my house 'whenever' I sell it?

3) Buy a house with my partner (with my name either on or off the deeds), but "don't" rent out my house.  As I won't be living in my house, will I still have to pay capital gains tax when I come to sell it?

As I have typed this, it seems that I will have to pay capital gains tax in all cases, unless I sell my house?

Any input / advice appreciated.

Kind regards

Rich

user1977

In general, you pay CGT on your capital gains - the exemption is on a property which is your principal residence. Doesn't matter what you're using it for if you're not living there, so leaving it empty isn't going to make a difference. So the most CGT-efficient course of action is not to own any property other than your main home. 

(note you still get a partial concession if the property was your main residence for some of your period of ownership).

lincroft1710

Regarding 3), leaving your house empty is not a good idea for several reasons, plus you would end up paying extra council tax and possibly increased home insurance premiums. The upside is that as you have lived in it at some point in time, you would be eligible for Private Residence Relief.

silvercar

If you have owned your home for many years and only intend to rent it out short term, you probably won't face a CGT bill. CGT is calculated on the proportion of time it isn't your home - less certain allowances.

AlexMac

As usual, silvercar is spot on.  As a quick google will confirm, it won't be a major problem in that you'll face a reduced CGT bill when sell, even if it's not been your "principal residence" throughout your tenure.  As one website says;

..."If you have lived in your buy-to-let property for a period, you may be entitled to some Private Residence Relief (PRR). You can claim tax relief for the years that the property was your principal residence, as well as for the last nine months before the sale...."

However, if meanwhile, you do buy a place together, I'd guess that you'll have to pay the higher level of SDLT as that will be a second purchase;
https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

I was nearly in this position some years ago.  I was living in the house of (sponging off?) my partner which she owned in her sole name, when a wreck came up at auction two doors away. I bought it in my name, v. cheap and did it up as my own sole principal residence. But even after I remedied a certain lack of home comforts (a roof, bathroom, kitchen, central heating, decor and flooring...), I must admit I spent more nights in the arms of my inamorata than in my own lonely bed next door; something a bit more tricky for you to claim at 60 miles of distance. 

When we then decided to buy together, we just flogged our two gaffs and pooled resources, to keep it simple in tax terms. 

There's also a rather more sensitive financial or emotional consideration if you go for your option 2) or 3).

In the hopefully unlikely event that you ever separate in future, it will be tricky untangling the finances; especially if you're not married.  But it does happen.  Mates of ours found this out the hard way out when they parted with acrimony after 30 years together!  They'd never felt the need to marry (both had previous, bruising 1st marriages) , but in the absence of a divorce settlement, and as by then, they owned three properties together it got bloody; nobody won except the lawyers, sadly!

Returning to personal anecdote about my own case, we eventually just gotmarried, 10-15 years into our relationship, mainly to keep financial and property ownership and inheritance issues simple.  I'm not counselling this in your case, but for us, it was also tax - efficient, as we by then also owned a couple of Buy to Lets.  Transfers between spouses don't incur CGT or SDLT, so although initially I'd bought one in my name, we got the solicitor to make everything joint.  If you did end up with two properties, and happened to marry, and did that, you'd benefit from two GCT allowances north of £12K  (who said romance is dead?)

I won't address option 1) as you'll already have seen gazillions of posts here about the responsibilities, obligations, perils and joys of being a landlord; but the meanie in me would risk it to about a few hundred grand's worth of asset lying idle!

saajan_12

Why so focussed on CGT? In all cases, if youre moving out of your owned property, then CGT comes into play regardless of the options you list. However there are other things that are affected eg your actual income, costs and other taxes. Don't let one thing overshadow the whole picture! 

Rich1234a said:

Hi,

I wonder if anyone could shed any light on this query please?

I own my house outright.

I am considering moving 80 miles away to live with my partner who currently lives in rented accomodation.

We will consider buying a property together in that area, but I don't want to pay capital gains tax when i come to sell it as my house has increased in value significantly. 

I feel like the options are:-

1) Rent out my house and buy a house with my partner with both of our names on the deeds of the new house - I think that if I do this I will end up paying capital gains tax on my house 'whenever' I sell it? - so you get the rental income, but then pay the additional 3% SDLT on the purchase with partner as you own another home (may get a refund if you sell your original home within a certain timeframe). 

2) Rent out my house and my partner buys a house and I contribute to mortgage payments but don't put my name on the deeds - I think that if I do this I will still end up paying capital gains tax on my house 'whenever' I sell it?  - so you get the rental income, and partner just pays the normal SDLT. However what if you split up - arguably you contributed to some of partner's capital, who may / may not be able to repay that.. could get messy. 

3) Buy a house with my partner (with my name either on or off the deeds), but "don't" rent out my house.  As I won't be living in my house, will I still have to pay capital gains tax when I come to sell it? - so no rental income, and you pay the standing utility costs, higher council tax for a vacant property, higher insurance costs for a vacant property..

As I have typed this, it seems that I will have to pay capital gains tax in all cases, unless I sell my house? - yes, though there are allowances. You can deduct buying / selling costs eg solicitors and agents. You'll get a proportional relief on the gain for the % of time you lived there (plus the last 9 months). Plus you have a 12k allowance assuming not already used on other investments. 

Any input / advice appreciated.

Kind regards

Rich