My client's wife, up until 3 years ago whilst unmarried, owned and resided in a house (that she had occupied as her main residence). Then, 3 years ago she got married to my client and moved in to live with him in a different house as a married couple, but she kept the other house (for her sister to reside in).
Shortly after the marriage 3 years ago, the wife's former residence was remortgaged and the husband acquired a half share in that house at that time. They have recently sold this house for a large gain.
There can only be one PPR at any one time for spouses. They were not married when his wife bought this house, so she will have period of use before marriage + 3 years as PPR. What isn't clear is the treatment of the husband's gain on this house.
If I were advising him before the disposal took place, would it have been worthwhile transferring the husband's half share back to his wife, on the basis that he wouldn't qualify for any PPR but she would on the whole of her gain? Or would such a transfer be unnecessary due to him having inherited his wife's entitlement to PPR (under s222 (7)(a), (b) TCGA 1992) via the "no gain no loss" transfer from wife to husband?
There is some inconclusive discussion on this point in the link below:
https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=163094
There also is some guidance in the Revenue manuals on this, but it's not completely clear and there are no examples to exactly match the above situation (see CG64925, CG64950, CG65163 and CG65171).
Has anyone got any views?
Justin Bryant
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Replies (5)
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Thanks for all your responses
Yes, it's quite a trap isn't it! If anyone else has this problem, a transfer should be made back to the wife/husband before the disposal (by a declaration of trust), as that will re-instate the full PPR.
Unfortunately the house was never a residence of the couple after the sister moved out.
PPR at the time of transfer
I don't think that s222 (7)(a) can apply as the house was not the couple's PPR at the time of transfer.
So for PPR puposes it has never been his PPR during his "period of ownership"
Thank you
The following link confirms the position beyond doubt:
http://www.hmrc.gov.uk/manuals/cg4manual/cg64952.htm
So the residence definitely must be their only or main residence at the date of the transfer for the extended PPR relief (under TCGA 1992 s222 ss(7(b)) to apply to the husband.
John Newth might want to clarify this point in a "Newthwire".
Worst of both worlds
It seems that your client has fallen into the classic trap for newlyweds. The transfer from the wife is a qualifying interspouse transfer, so the husband will take over the wife’s original acquisition date and base cost, but because he never lived there he gets no PPR exemption.
A straw to cling to?
The original post said that the wife's sister lived in the house in question after the marriage. Presumably at some point the sister moved out prior to the sale. At that point the husband and wife may have had two residences in which case they could now jointly elect (assuming this was less than two years ago) for the house to be the PPR from the date the sister moved out to the date of sale.
This would give the husband the last three years PPR exemption.