Capital Gains Tax at time of marriage

Madeinireland101

My Daughter is about to be married. She owns a house with a mortgage and her new husband owns a house with a mortgage which he has rented out. What are the CGT implications of this new union. I think they will probably, at least in the short term continue to live in her house and continue to rent out the other. They will probably buy a new property at some stage and will probably sell on one (or both) of their existing properties or may decide to rent them both out. What are the pitfalls that they need to watch out for in regards to CGT? Are they given a timeframe before they are liable to CGT on either property when they sell or are they immediately liable for tax on one at the date of the marriage? Thanks.

BarelySentientAI

A married couple can have only one primary residence - but it seems like they already only have one anyway.

They are already liable for CGT on both properties, everyone is, it's just the amount of relief from the liability that matters.

The house that is rented out already has some time not eligible for relief, that doesn't suddenly change.

Brie

As far as I understand there's no effect of a marriage on CGT.  

Your daughter owns her house and as long as she continues to live in it there won't be CGT until such time as she sells it.  Your future SiL will have CGT to pay on his rental property when he sells. 

Someone else has posted something very recently saying there's 9 months after selling before CGT becomes an issue assuming the house is not longer the principle residence from the sale date.  

Your daughter's house doesn't automatically become the property of her new husband nor his house hers.  They do both acquire certain rights to share the values of both properties should the union end in divorce of course but hopefully that won't be an issue. 

RAS

CGT is not payable on a primary residence if the owner has occupied it for the full duration, or is it's sold within 9 months of ceasing to be the primary residence. So SIL is almost certainly liable for CGT on his rental house.

They also need to understand the rules round SDLT in the country in which they live.

They continue to own their own houses and if they divorce within a few years, the courts would return them to the state they were in on marriage.  Children and time change the calculations.

silvercar

The the difference that marriage makes is that they can have only one primary residence between them. But, given a property rented out can never be your primary residence, it shouldn’t make any difference in this case.

As others have written, when son in law sells his rented out house, he will have some CGT to pay based on the gain, discounted for the time it was his primary residence plus the last 9 months of ownership- under current rules.

A future issue is that if the couple decide to buy a new place together and your daughter sells her current home there will be extra SDLT to pay as he will be increasing the number of properties he owns from 1 to 2. The way round it is to put your daughters house into joint names before selling it. That way he won’t be increasing the number of properties owned and will merely be replacing his primary residence.

Bookworm105

Brie said:

As far as I understand there's no effect of a marriage on CGT.  

that is too simplistic
from the date of marriage the couple may only have one main residence entitled to relief. It is deemed to be the one they live in. There is a huge list of tests that assess where they "live" if they have 2 properties and it is not self evident which is the martial home or they have not made a formal nomination within the permitted time limit in respect of one if they have access to two or more residences.

Bookworm105

Madeinireland101 said:

My Daughter is about to be married. She owns a house with a mortgage and her new husband owns a house with a mortgage which he has rented out. What are the CGT implications of this new union. I think they will probably, at least in the short term continue to live in her house and continue to rent out the other. They will probably buy a new property at some stage and will probably sell on one (or both) of their existing properties or may decide to rent them both out. What are the pitfalls that they need to watch out for in regards to CGT? Are they given a timeframe before they are liable to CGT on either property when they sell or are they immediately liable for tax on one at the date of the marriage? Thanks.

please confirm ....daughter remains sole owner of what is now the marital home?

On that basis son in law therefore has zero liability for CGT on it as he is not a beneficial owner of it for tax purposes (financial settlement on divorce is a different matter). When daughter sells it she will have relief for the entire time it was her main home

if daughter makes her husband a co-owner then husband "inherits" her claim for relief from the date of her ownership 
CG64925 - Private residence relief: ownership period: spouses or civil partners and legatees - HMRC internal manual - GOV.UK (www.gov.uk)

when son in law sells his BTL wife has never been an owner of it so he and he alone will have CGT on it (with a claim, for relief if it was ever his own main home prior to the marriage). if he makes her a co-owner then any rental income would have to be split accordingly and declared under each personal tax return. Making her a co owner of a BTL will be on a no gain no loss CG basis, ie she acquires it at his original purchase cost but at least with 2 owners the CGT on sale would be slightly lower as each would have their own CGT allowance (£3,000 - if any remains after the Oct 24 budget!) 

when selling the daughter's (now marital) home there is an overlap period of 9 months when CGT relief on it is still available if they move out into the new marital home and the old one is vacant pending sale. After 9 months the old home becomes partially liable for CGT as it will no longer be 100% covered by main home relief  

SDLT_Geek

silvercar said:

.............

A future issue is that if the couple decide to buy a new place together and your daughter sells her current home there will be extra SDLT to pay as he will be increasing the number of properties he owns from 1 to 2. The way round it is to put your daughters house into joint names before selling it. That way he won’t be increasing the number of properties owned and will merely be replacing his primary residence.

If the couple buy a new home in England then the rules around the "replacement of main residence" for a married couple are a little more favourable than @silvercar suggests.

The husband will be able to rely on the sale / disposal by his spouse of the property they have been living in as their only or main residence to come within the replacement rules.  This is confirmed in the HMRC guidance in their manual at SDLTM09800.  So even if he still owns his let property when they buy a new home, the 3% extra should not apply if his wife is selling their home.

silvercar

SDLT_Geek said:

silvercar said:

.............

A future issue is that if the couple decide to buy a new place together and your daughter sells her current home there will be extra SDLT to pay as he will be increasing the number of properties he owns from 1 to 2. The way round it is to put your daughters house into joint names before selling it. That way he won’t be increasing the number of properties owned and will merely be replacing his primary residence.

If the couple buy a new home in England then the rules around the "replacement of main residence" for a married couple are a little more favourable than @silvercar suggests.

The husband will be able to rely on the sale / disposal by his spouse of the property they have been living in as their only or main residence to come within the replacement rules.  This is confirmed in the HMRC guidance in their manual at SDLTM09800.  So even if he still owns his let property when they buy a new home, the 3% extra should not apply if his wife is selling their home.

Strange as the chain I know of recently was delayed for this reason. Maybe the couple weren’t actually married, or had been wrongly advised by their solicitor (or the solicitor suggested doing it as a precaution).

Madeinireland101

Thanks for all the comments which are very interesting. My daughter owns the house and her future Husband moved in about a year ago. 

So if she sells the house I’m hearing that she would have no CGT to pay. If they then move into what was his rental property for a while  wouldn’t that then become their primary residence enabling them to sell it eventually with no CGT to pay prior to moving into their final house? Or perhaps he would have CGT to pay for the period it was rented out minus 9 months?

Thanks

silvercar

Madeinireland101 said:

Thanks for all the comments which are very interesting. My daughter owns the house and her future Husband moved in about a year ago. 

So if she sells the house I’m hearing that she would have no CGT to pay. If they then move into what was his rental property for a while  wouldn’t that then become their primary residence enabling them to sell it eventually with no CGT to pay prior to moving into their final house? Or perhaps he would have CGT to pay for the period it was rented out minus 9 months?

Thanks

If they move in, it becomes their primary residence. He would be exempt from CGT for the time it was his primary residence and the last 9 months of ownership ( though it sounds like there would be an overlap of the last 9 months with primary residence).