Letting relief on property transferred to a spouse

Letting relief on property transferred to a spouse

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Can anyone put me straight on a question where research tends to reveal conflicting advice and TCGA 92 is (as ever) as clear as mud!

Section 222(7) makes it "clear" that, if you put property into joint ownership with your spouse, they can only get PPR relief for earlier periods if the property is put in joint names whilst it is (present tense) their joint PPR. So far so good. If you want to do this and the property is currently being let, simply kick out the tenants, move in for a reasonable period (say a year), change your address on all official correspondence, put yourselves on the voting register and let out the old house so there is no suggestion you carried on living there.

But what about Letting Relief? Can your spouse claim this if he/she did not own the property at the time or lived there previously? Some advisors say No, but s222(7) suggests you can, for it says the donee spouse acquires the "period of ownership" of the donor spouse, and s223(4) says that letting relief can be claimed if it was let during your "period of ownership".

So what am I missing here? Why do some advisors say Letting Relief is not available in those circumstances?

Apart from Letting Relief, the only tax saving benefits are the spouse AE and a possible reduction in the proportion of the gain exposed to 28% so it is highly relevant.

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Portia profile image
By Portia Nina Levin
24th Oct 2014 16:56

No

I assume that the situation is that the transfer was between the spouses whilst occupying the property as the main residence and the letting period was before that time.

It is then the case that the acquiring spouses period of ownership starts when the disposing spouses period of ownership starts and the periods of occupation as the main residence are inherited.

However, for lettings relief to apply, it must not only be let during the (actual and deemed) period of ownership, it must be "let by him" (section 223(4)).

The property is not deemed to have been let by the acquiring spouse, but only deemed to be owned and (where appropriate) occupied by them.

Are you writing a book? This is the second PPR question of yours that I have answered. What is my cut?

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By Justin Bryant
24th Oct 2014 17:51

I think
If the property is gifted by H (with inherent taxable gains) to W before it becomes W's PPR, then that would eliminate all the gains on the property if W later sold it as her PPR (in case you want to add that to your book).

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By King_Maker
24th Oct 2014 17:58

Surely the better option would be to transfer 100% to the other spouse whilst the property is being let; followed by a qualifying period of PPR for both spouses.

This would exempt the total period of ownership of the transferee spouse from CGT - which, in effect, means no CGT for the transferor's period of ownership also.

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Replying to scalloway:
By cfield
25th Oct 2014 13:34

The holy "growl" of tax planning

King_Maker wrote:

Surely the better option would be to transfer 100% to the other spouse whilst the property is being let; followed by a qualifying period of PPR for both spouses.

This would exempt the total period of ownership of the transferee spouse from CGT - which, in effect, means no CGT for the transferor's period of ownership also.

Yes, that is an option of course, and would wipe out all pregnant gains to date if it works, but it's terribly risky because there may not be a "qualifying period of PPR" after the transfer. In that case, the transferee spouse would get no PPR or letting relief and all you would have succeeded in doing is losing both the PPR relief and letting relief earned by the transferor spouse, since the base cost would still be transferred under the no gain/no loss rule.

I guess you could describe that as the holy "growl" of tax planning - the growl coming from the taxpayers when they find out what you've done to them!

Qualifying periods of PPR tend to be longer than people expect (unless the quality of occupation is so good and so well evidenced that they can get away with a short period before selling the place). Worse still, they tend not to find out until it's too late to do anything about it. Also, if a large gain is at stake (as there would be if it's worth doing at all), HMRC are far more likely to challenge a borderline PPR claim.  

This type of planning will be even riskier from next April when "flipping" seems likely be consigned to the history books. Then, you will need to prove that a PPR really is your main residence, not just a residence.

My plan would at least secure extra PPR and LR if it works, even if it doesn't wipe out the whole gain. If HMRC disallow the PPR claim for the last few years, no real harm done as the transferee would still have the deemed period of occupation earned by the other spouse to claim PPR on the "old" part of the gain. Plus there would be 2 annual exemptions and the possibility of minimising 28% CGT (which they would get anyway whether it was their PPR or not).

So ultimately it is a gamble, which it would be wise not to make unless you are absolutely certain that:

a) you will get PPR at some point in the future on that property; and

b) that there will be enough of it to produce a smaller taxable gain than there would have been anyway.

 

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Replying to King_Maker:
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By PeterBalhma
21st Aug 2017 18:21

I read a incredibly well written article the link no longer exists

http://www.taxationweb.co.uk/tax-articles/property-taxes/main-residence-...

I told my nephew on holiday that is he gives the property to his wife whilst it is let.

The date she is deemed to won it is the date of the transfer say planned to be one month before the property stops being let.

If she moves in and takes it to be her PPR they cane avoid tax

I am no tax expert at all , was this link correct?

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By Justin Bryant
24th Oct 2014 18:04

I agree
With King_Maker.

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By King_Maker
24th Oct 2014 18:10

Obviously Justin types quicker than me! :)

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Portia profile image
By Portia Nina Levin
25th Oct 2014 12:25

Oh look, the smug crowd have arrived

You know the smug people, by the way that they use hindsight as a planning tool. Terrible practice in my opinion.

However the question that the OP is asking tends to arise in the following sort of situation.

Wills is a singleton who comes from some family wealth. After he leaves uni, he buys himself a nice little 10 bedroom house in the leafy suburb of Mayfair.

He lives there three years before magically learning to fly helicopters in the army and sodding of to the middle east for a few years. He lets the house in Mayfair while he's away.

On his return, he decides to continue renting the house in Mayfair and buy himself a nice little pied a terre in Knightsbridge. Bumbling around quaint little Knightsbridge, he bumps into the lovely Kate. They fall in love... we already know this story, because we use hindsight as a planning tool.

Wills and Kate get wed and decide to move into the 10 bedroom house in Mayfair. Wills transfers half the house into Kate's name (feckin' idiot, she saw him coming), and Kate, under 222(7), because the transfer takes place while Wills and Kate occupy the property as their main residence, Kate has now magically owned her half of the house for eight years and occupied it for the first three of those years for CGT purposes, even though she did not even know Wills at the time.

However, Kate is not going to have a magic period of lettings relief, because of 223(4)'s "let by him" condition.

That was the point of the OP, as I understood it, and the smug hindsight planning does not work in that situation.

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Replying to Red Leader:
By cfield
25th Oct 2014 13:38

Wills and Kate

Portia Nina Levin wrote:

That was the point of the OP, as I understood it, and the smug hindsight planning does not work in that situation.

Yes Portia, that is what I meant, although I would like to make it clear I am not acting for the Royal couple!

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Portia profile image
By Portia Nina Levin
26th Oct 2014 10:46

Wills and Kate

To clarify, in my previous example, any similarity of the characters to persons living or dead was entirely coincidental.

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