Client has inherited family home from mother. Property sitting a substantial gain.
Client lived in property as a child but has never owned it and lived in it simultaneously. Moved out pre March 1982. Is he entitled to last 18 months PPR??
Replies (29)
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To qualify for the 18 months rule does it not have to be your only or main residence at some point of your ownership? He would not have owned it during his childhood.
Furnished Holiday Let
Husband and wife own a property which will be rented out for holiday lets. (within scope of VAT)
Wife is sole trader and has a voluntary Vat registration (turnover £50k) and is enjoying the benefit of the flat rate scheme. Husband is also a sole trader (income £25k) and is not vat registered.
Property rental income estimated at £20k - If wife wants to continue to enjoy the flat rate benefit vat will obviously need to be charged on the holiday let income - As husband is not vat registered my question is why should HE suffer 20% vat on their vat inclusive property turnover?
I assume that all 3 incomes don't get added together (£50+£25+£20k above) to push them into having to register as he and she are separate entities?
Also can the property income be channeled through a partnership to avoid any vat implications?
Raise your own question
This is not relevant to the opening post. Please raise your own question.Husband and wife own a property which will be rented out for holiday lets. (within scope of VAT)
Wife is sole trader and has a voluntary Vat registration (turnover £50k) and is enjoying the benefit of the flat rate scheme. Husband is also a sole trader (income £25k) and is not vat registered.
Property rental income estimated at £20k - If wife wants to continue to enjoy the flat rate benefit vat will obviously need to be charged on the holiday let income - As husband is not vat registered my question is why should HE suffer 20% vat on their vat inclusive property turnover?
I assume that all 3 incomes don't get added together (£50+£25+£20k above) to push them into having to register as he and she are separate entities?
Also can the property income be channeled through a partnership to avoid any vat implications?
Sorry, what has the above post to do with the original post?
Please start a new post
I see that I have been beat to it - too slow on the keyboard!
Substantial gain?
How long ago was the property inherited?
Because any substantial gain made over the mother's period of ownership will be cleared out through inheritance tax. When your client inherited the property, their acquisition cost is the probate value at date of death. This is because that value would have been included in her estate for determining whether inheritance tax is due.
So unless they've held on to it for a long time after that, they are unlikely to have a substantial gain themselves.
oh yes
Property was inherited a while ago, so there is a substantial gain based on current value and probate value.
Does qualifying for PPR need occupation whilst owning?
Yes! Think of the meaning of the word "residing".
I think the legislation makes it quite clear
S222 (1) TCGA 1992 : - The PPR rules apply to
"...a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence."
Yes, Kevin - one can reside in a property without owning it. But you would fail the requirement of s222(1)(a)
This was posted at the same time as the preceding comment
If he's married
And owns it in his own name, the gain can be washed out with careful planning if he moves in with his wife.
Justin
Does he need to move in with his wife? The solution that I have seen doesn't make that an absolute necessity.
Yes
He & his wife have to move in and occupy it as a main residence. I would be surprised if the alternative solution you have seen that does not involve such occupation works to achieve only or main residence exemption.
Justin
Husband transfers property to wife before either of them move in. No gain/no loss and wife does not inherit husband's PPR history. Wife then moves in to the property as her residence - husband remains in existing property. There are now 2 residences but since a married couple can have only 1 main residence between them an election is in point. Election is made to treat wife's property as the main residence. She sells, profit entirely covered by PPR.
Does this not work? If not, why not?
I think it is
Rather hard to argue that a married couple occupy a property as an OMR when they do not live there together.
OK, Justin
But husband lives in one property, wife in another - with equal 'quality' of residence. Presumably you accept that they have, between them, one main residence (the legislation specifically caters for this). Which one would you say is currently the main residence?
I agree with Ruddles
A husband and wife are "living together" all the time that they are not separated by court order, by deed of separation, or in circumstances likely to become permanent (TCGA 1992, s 288(3) and ITA 2007, s 1011).
It is possible for such a couple to have separate actual residences (sometimes even in different countries), but they must choose which of them is their joint only or main residence (by virtue of TCGA 1992, s 222(5) & (6)).
So Justin's "plan" can be modified by H transferring to W prior to either of them actually occupying the property as a residence. Then either H, or W, or both occupy the property with sufficient quality of occupation to make it a residence, making an election as necessary.
Justin's "plan" works perfectly well if H transfers the whole interest to W, and then H occupies the property as a residence with W having a residence elsewhere, provided that H and W are not separated by court order, deed of separation, or in circumstances likely to become permanent.
Similar situation?
Would the 'plan' also work in this situation:
Husband owns a property which was gifted to him by his mother, but she continues to live in the property. No rent paid, so will still form part of her estate for IHT, and will then be subject to CGT on eventual sale.
When the mother dies, if husband transfers the property into wife's name, then they sell their existing PPR, and move into the mother's former house, will this also remove any CGT liability (assuming the occupation is of sufficient quality)?
@ Sharon
There's possibly no need for Justin's plan in the situation that you refer to. If the mother's gift to the son was conditional on her being able to continue to live there for the rest of her life, then you have a settlement, with the settlor retaining a life interest, and PPR relief will be available in respect of the mother's occupation.
When the mother dies, if the son and his wife then occupy the property as their PPR relief will be available in respect of their occupation.
However, a transfer to the wife immediately prior to occupation would protect the position if the claim for relief in relation to the mother's occupation was considered likely to fail, and would work, just as in the OP's situation.
Yes
SK is right (my plan is how he describes it and it has been mentioned on this website before). The other plan does not seem to work per links like that below:
http://www.taxationweb.co.uk/forum/cgt-advice-for-married-couple-living-separately-t31319.html
@ Justin
Nobody on that thread seems to have identified the fact that there is a statutory definition of "a husband and wife living together", which does not require them to actually live together. And therein lies the fault in the comments made. See CG22070.
Frankly, I favour my own opinion over the comments of people whose technical expertise is completely unknown, in any event. I am comforted though by Ruddles (whose technical expertise I am aware of) sharing the same view.
Is the major drawback of the 'plan'
proving the quality of residence sufficient that an election is relevant sufficient to be able to persuade a tribunal?
SK
I think we agree, but the H&W living together deeming rule will not go so far as to deem them to both be living together in both the properties if they in actual fact do not do so. There is case law on the limits of statutory deeming. See also:
http://www.telegraph.co.uk/finance/property/advice/propertyclinic/730077...
A couple of points
First of all, if the couple are in fact separated, then they get the best of both worlds - providing the transfer is made whilst they are living together then, on subsequent separation, they are each entitled to have a main residence. In either case, therefore, I can't see how the 'alternative' solution would not work.
Paul - you are correct, but that is a separate topic. The alternative 'plan' to which I referred assumes that there is such a quality of residence. I agree that it might avoid difficult questions if both spouses were to move in together but my point was that it does not appear to be an absolute necessity for success.
Justin
I don't see the point that you are trying to make. The Telegraph link seems to confirm my own view - an election can/should be made. I don't think anyone was suggesting that the couple must be deemed to be living together in both properties. Per my earlier comment, if a couple (not separated) are living in different properties, with equal quality of residence, which one would you treat as the couple's (ie the wife's) main residence?
That wasn't much of an answer, Justin, but it may be the best that we're going to get. Thank you.