HeavyMetalMike
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CGT and PPR - lived in, inherited the other half

CGT and PPR - lived in, inherited the other half

My client sold a property in 2011/12.
She bought the property in 2005 jointly with her father and they both lived in it 2 years. She moved out in 2007. Father carried on living there and died in 2008 at which time she received the other half. It was let for a period until sale.
I have a gain of 30K - total proceeds less half of original cost and then half of probate value. But now i'm stuck on divi-ing it between occupied periods of living in, letting relief.

How would you split the gain to do PPR etc. At first principles half of the gain would be wholly exempt under the normal "owned, lived in, let and then sold" scenario due to last three years and letting relief. And then the other half has been never lived in ie from father's death. Of course I am not saying two assets are being sold, it is just the one house.

We can't apply the last three years to the whole gain as she only lived in half of it.

I am aware of s222(7) which treats ownership as beginning when the daughter bought a share, ie her half. But it then seems a bonus that as well as getting a probate uplift she also can treat the whole property as being one that she did live in, which would then be wholly exempt after PPR, lettings, last 3 years etc.

Any thoughts please?

Many thanks

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30th Jan 2013 14:18

Does Lettings apply?
I think she needs to return to the property to benefit from that part.

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By BKD
30th Jan 2013 14:23

You already know my answer!

Let's see who (dis)agrees :)

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30th Jan 2013 14:27

Yes BKD.

Since when is lettings only available AFTER returning to property!?

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30th Jan 2013 15:33

I agree with HeavyMetalMike

In what way does TCGA 1992 s223 (4) demand reoccupation?  It simply requires a gain to which PPR applies (in some form) accruing to an individual who has at any time in his period of ownership let by him as residential occupation....etc etc.

It does not refer to the period of absence the other PPR reliefs (except the 3 year freebee) require which mean reoccupation.

I'm interested for the counterargument (point me to the thread if already done in the past).

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By BKD
30th Jan 2013 16:09

Possible misunderstanding

It was not me that suggested that reoccupation was necessary for letting relief. I agree with the 2 preceding points.

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30th Jan 2013 16:19

Oh sorry...

....I thought you were agreeing (to disagree - or something like that) with cparker87, who I also appreciate has simply made an off the cuff remark (which initially I agreed with).

No offence intended - although perhaps I should start using long-winded sentences which have stilted English with the OCCASIONAL emphasis placed in SOMETIMES inappropriate places and some random slurs against all and sundry who are not as intelligent as me and every point made must be countered and(  brackets seem to float around in the strangest places....

 

Sorry, got distracted!

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By BKD
30th Jan 2013 16:28

Please, no ......

mbdx7ja2 wrote:

....perhaps I should start using long-winded sentences which have stilted English with the OCCASIONAL emphasis placed in SOMETIMES inappropriate places and some random slurs against all and sundry who are not as intelligent as me and every point made must be countered and(  brackets seem to float around in the strangest places....

 

One is enough to deal with :)

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30th Jan 2013 17:14

Have you taken into accounbt that when the father died the property was transferred at 1/2 the probate value to the daughter. Regards Peter

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By BKD
30th Jan 2013 18:15

I'll answer that for you, Pete:

I have a gain of 30K - total proceeds less half of original cost and then half of probate value

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31st Jan 2013 08:20

You can't have half a main residence

She has a period of ownership that began in 2005 and ends in 2011/12.

During that time, the property was her main residence from 2005 to 2007 and the three year period 2008/09 to 2011/12 is also PPR covered. From 2007 to 2007/08 lettings relief applies.

The uplift on Dad's death is probably a bit of a red herring.  Even without the uplift, I suspect the gain would be fully covered by PPR/lettings relief.

Why isn't anyone else having a go at answering the question? Am I missing something?

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By BKD
31st Jan 2013 09:28

Missing something?

Well you did 'miss' my answer to the OP, George - but that was given elsewhere. Suffice to say that it pretty much agreed with yours.

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31st Jan 2013 09:48

Thank you George and to BKD.

Yes the probate uplift issue was the red herring but that was why it became a hard sum.

Cheers

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31st Jan 2013 09:53

I've thought about it a bit more!

I don't think she's entitled to a whole lot of lettings relief.  I'll tell you why I think it.

S.223(1) and (2) essentially say that the period of occupation as main residence, plus the last 36 months, "shall not be a chargeable gain".

When S.223(5) then kicks in for the letting and applies to the part of the which would be a chargeable gain by reason of the letting.

Now most of the letting occurs in the last 36 months of ownership, so most of the gain that accrues by reason of the letting already isn't a chargeable gain.

The taxable period is the year that dad lived in it on his own, and to which lettings relief doesn't apply.

Faulty logic?

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31st Jan 2013 10:13

Most of the gain is attributable to the original price being discounted by a massive 38% under Right to Buy scheme. During which period she was living there. But I know the gain accrues evenly and you can't say the gain during non-occupation wasn't actually much. More faulty logic?

THanks

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By BKD
31st Jan 2013 11:28

I agree, George

Which means that my original (invisible) answer to Mike will need to be adjusted slightly - I hadn't read the question fully and hadn't taken full cogniscance of the relevant dates, focussing as I was on the question of apportionment or not. That's my story,and I'm sticking to it :)

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By cfield
04th Feb 2013 16:30

My votes with BKD and George

Firstly, no need to reoccupy a property as your PPR in order for letting relief to kick in (as cparker87 wrongly advised). Any short PPR period will do (before or after the letting).

Secondly, I think the OP was equating the periods during which the gain accrued with the share of ownership, and that is where the confusion lay.

Chargeable gains always accrue evenly over the whole period of ownership (even though the reality might have been entirely different) and increasing your share of an asset does not turn it into 2 periods of ownership.

Counting half the probate value as part of her acquisition cost is not really a "bonus" as that would have been subject to the IHT regime don't forget. The fact that it may well have been exempt from IHT by virtue of the nil rate band is irrelevant.

Thirdly, any letting during the last 3 years will be inoperative for the purpose of s223(5) as it is exempt anyway.

You need to check that the pro-rata gain attributable to the period of letting between (sometime in) 2007 and (sometime in) 2008/9 did not exceed the maximum cap of £40,000. This should be on a pro rata daily basis.

 

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