Capital Gains Tax - Wife's allowance

Brooktop

I have a property that I bought in 1992 and lived in until 1996. I've rented it since. I'm now going to put it on the market and will be liable to CGT if it sells. There is still a mortgage on the property. It seems a bit of a minefield, but my questions are:

1. How do I calculate what the property was worth in 1996?
2. Although my wife's name is not on the deeds, is it worth me going to the trouble and expense of putting her on the deeds so that we can get two lots of allowance (2 x £9,600)?
3. Is the rate of tax, 18%, regardless of my salary?

Anything else I should consider to mitigate my CGT burden? We have a 2 yr old daughter, if there is anything I can gift etc.

silvercar

1. Property value in 1996 is not relevent to the CGT calculation
2. It could be, do a calculation first to see if the legal costs make it worthwhile. It may not be worthwhile depending on whether your wife has actually lived in it as her home or not.
3. Yes.

Roughly speaking you would be liable for a portion of the gain. It is calculated in months, but out of 16 years ownership you appear to have PPR relief for the 4 years of ownership and the last 3 years = 7 / 16ths add to that letting relief, which could give you upto another £40,000 of relief, plus your CGT allowance of nearly 10k.

Brooktop

Thanks Silvercar - that makes interesting reading because I reckon the house will go around the £80k mark and I bought it for £33k. Why is the 1996 value not relevant? I thought you only paid on the increase in value SINCE you moved out. My wife never lived in the property.

Icey77

You have to pay tax on the gain, so you paid £33k and will hopefully seel for £88k the gain is £55k

You need to allow for the time value of money as £33k in 1992 is not the same as £33k now in 2008.

Don't forget to add in any costs such as capital expenditure and mortgage product fees to reduce your gain further and thus the tax you have to pay. Perhaps someone on here will be able to advise you further on allowable costs as I am more than a little rusty on CGT

Brooktop

Have I been incorrect in my assumption then that you only pay CGT on the increase SINCE it was not your main residence? It would seem very unfair if, say, I'd lived in that house for 15 years and then, say, moved out for a year to live with a partner and then sold it.

Icey77

You would need to pro-rate the number of months that it was not your main residence out of the total number of months that you owned it and apply this multiple to the gain figure.

You should not be paying CGT on the sale of your Principle Private Residence but you should be paying it on any portion that it was NOT your PPR. I think there are some reliefs / limits applicable but as I said my knowledge is now rusty.

Bungarm2001

It shouldn't cost you more than around £150+vat to put your wife's name on the deeds. You could pay less if you do it yourself if you are confident enough. The people at your local Land Registry office will be extremely helpful with advice about this I'm sure.

You can claim for all capital expenditure i.e. legal fees etc when you first bought the property and any improvements you have made on it since, like double glazing, new kitchen, new bathroom etc You should also be able to claim taper relief, but as that is set to change pretty soon, you'd be better off talking to an accountant who is well versed in property matters.

I have to say that I'm not so sure you will have to pay any CGT since it was at one time your PPR?? Have you spoken to anyone at HMRC? It might well be worth a phone call.

edit; this explains it a bit better

silvercar

Some posters on here are following the old rules not the new, remmeber the rules on CGT changed on 5 April 2008.

You have a gain of 47k, roughly 7/ 16th of the gain is exempt from CGT as it covers the time it was your PPR and the last 3 years of ownership. So the 47k gain is reduced to 26.4k.

letting relief would be equal to the PPR relief ie 7/16 ths of 47k = 20.6k.

26.4-20.6=5.8k well within your 9.6k CGT allowance, so there would be no tax to pay.

If you transferred half the property to your spouse, she would have a gain of 23.5k but would get no PPR relief (I'm presuming this has never been her home, correct me if I'm wrong) and would not get letting relief so this would actually increase the CGT bill!