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Tenants in common PPR and CGT HELP PLEASE!

Hi all,

I wonder if you can help. I bought a house as a single person on my own in Sep 1995 and lived in it as my only and main residence until May 04, when I bought another house with my then boyfriend.

My original house was empty from May 04 (when I moved with my boyfriend) until Aug 05. Since Aug 05 I have rented it.

In Feb 06 I married my boyfriend and soon after I decided to add his name to the deeds of my original house as tenants in common 50:50.

At the end of Aug 2010, we decided that my now husband should own 99% and I should own 1% of my original house, as he was doing most of the letting, management and maintenance work. We did a declaration of Trust and informed the HMRC about it by filling form 17, so that he will get 99% of the rent for self assessment purposes. Now he has lost interest in doing the letting and management work and I am doing it instead. So we are planning to reverse the ownership to 99% on my favour this month, so I will get 99% of any profits/losses and any future CG allowances. Again we are planning to do an amendment to the declaration of tax and a new form 17 for the HMRC.

If in the future we sell the this house I wonder how the capital gains tax will apply to each of us, since my husband has never lived in my original property and has own it only after our marriage at different shares: 50% for 4 years & 4 months, 99% for 18 months and 1% from now on.

Here is my request for help as a case study: If we sell the house, let’s say in Sep 2012 and have a gain of £100,000 and my share is 99% at the time of marketing and selling, then I would have owned this house for 17 years (204 months) of which I would have lived in as my main an only residence for nearly 9 years: (104 months). Please, could you confirm what would my husbands and my CGT liability is. Are the rational and calculations below correct?

1. My CGT liability: Would my private residence relief will be = £67,941 out of the £100K gain (99% of 140 months (104 month +36 month) out of 204 months)? The amount of the gain attributable to the residential letting would be just over £32K. Thus, it appears that I would have no CG tax to pay, because as a high rate tax payer, I will be liable to pay 28% of £32K which is less than the over £10K CGT annual allowance?

2. My husband’s CGT liability. I guess my husband's CGT liability  would be based on his 1% of ownership (his share of the property at the time of sale) and thus he will have no CGT to pay as this will be well under less than the annual GCT allowance. I guess my husband would not be eligible to any PPR at all, as he has not lived in the house, despite having different shares of ownership overtime? I also guess that the different shares of ownership we have had over the years (as a husband and wife) would have no relevance in terms of GCT, only the final share of ownership at the time of sale would be applicable.

Many thanks

Replies

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CGT

If you had not done anything there would have been no CGT os disposal due to PPR and Letting relief :

 

Purchase50000 14/09/1995Disposal150,000 14/09/2012Total Gain100,000  PRR68,137139204Capital Gain31,863  Lett Relief31,389   Qual Days1949Net Gain474  CG Allow10,600  CGT 18%00 CGT 28%00     CGT Bill0  

Note that the CGA is deducted from the net gain then taxed.

Yes as long as the beneficial ownership is securely recorded with HMRC well prior to any marketing or 'exchange of contrac't your assumption at 2/. is correct.

Regards Peter

 

 

Thanks (1)

Hi Peter, I wonder how you calculate the letting relieve

 

If the house was rented for 84 months (Aug 05 til Sep 12) out of the 204 months of total ownership (Sep 05 to Sep 12)

 

then would the letting relief be (84/204)*100,000 = £41K???, and thus the lower of the 3 options be £40K

 

thus out of the £99K gain, 68K is PPR and £40K is letting relieve???

 

Many thanks

 

Optimist

Thanks (0)

LR is the Gross gain divided by the total number of days owned, times the total number of qualifying days rented out but NOT including the last 36 months as those are covered by PPR. Regards Peter

Thanks (1)