Spousal transfer and PPR

Spousal transfer and PPR

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Hi

Here is the scenario

Mr X lived in a property for 3 years and then let it out for 7 years. He is now married and is thinking of moving back into the property for a short period of time. For separate reasons, he is also looking to transfer said property into his wife's name. My questions are

1. Will they lose the relief from the first 3 years of ownership when it was his PPR, or would the base cost for his wife be as of the date he moved out 7 years ago?

2. Will it make a difference if he transfers the property to her before they move into it, or after?

Thanks

Hughie

Replies (47)

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Portia profile image
By Portia Nina Levin
24th Apr 2015 15:20

(No subject)

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By Alan Deakin
20th Apr 2015 15:13

If he moves into the property with his wife, when he disposed of the property he may lose some PPR relief when he sells.  You need to do the calcs.  lettings relief/deemed occupancy etc

If he transfers the property to his wife there will be no gain/no loss.  When his wife sells she will get PPR relief.  If it is transferred after they move in then the property will have been her PPR for the whole of the period her ownership so she will get PPR relief in full.

If  it is transferred before she moves into the property, there will be a period before she took up residence which will not qualify for PPR relief. 

If there is just a short period between the transfer and her moving in then any loss of PPR relief will probably be covered by her AE.

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By User deleted
20th Apr 2015 15:27

Confiused by your last statement, Alan

If property is transferred before they move back in, her PPR will be restricted to the period of her occupancy. How can you possibly tell that the loss of PPR/letting relief for the previous 10 years will be covered by AE?

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By Alan Deakin
20th Apr 2015 15:51

The previous ten years will not be relevant if wife owns the property.  PPR relief will be allowable in full if she disposes of the property and it has been her PPR for the whole of the period of her ownership. 
TCGA 1992 says that no gain will be "a chargeable gain if the dwelling house or part of a dwelling house has been the individual's only or main residence throughout the period of ownership"

Assuming that it will be her only or main residence, then there will be no gain.  It would be husband who owned it for he previous ten years and PPR relief would be apportioned if he continued to own it.  So it would not be a good idea to put it in joint names as his PPR relief would be restricted.
 The part of the gain which I was referring to as probably being covered by the AE was if the property was transferred to the wife today and she moved in next month.  There would therefore be 1 month potential loss of PPR relief.

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By User deleted
20th Apr 2015 16:52

Some creative tax planning, then?

Too late in the day to think it through, but:

Husband has property pregnant with massive chargeable gain.

Transfers it to wife.

Husband and wife move in.

Provided none of the anti-avoidance etc bites, and the property qualifies as PPR. The gain is miscarried and subsequent sale wholly relieved.

Sounds a little too good to be true - what have I missed?

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Portia profile image
By Portia Nina Levin
24th Apr 2015 15:21

(No subject)

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Portia profile image
By Portia Nina Levin
24th Apr 2015 15:21

(No subject)

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By King_Maker
20th Apr 2015 17:58

Portia's Scenario 4 is best option, if Scenario 1 produces a CGT liability. The former is, in my opinion, an aggressive manoeuvre though theoretically effective.

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By Alan Deakin
20th Apr 2015 19:58

 

 

Portia, you are barking a tree which does not exist.    s 222(7) is talking about an  individual who  has different interests at different times.  The wife never has only one period of ownership.  ie from when husband transfers the property.

Husband transfers it to wife at NGNL.   Wife does not inherit his ownership history in terms of letting reliefs etc.  Nowhere in the legislation does it say this. What he legislation does say is that wife inherits property at a sum which gives rise to neither a gain nor a loss. (s58) So, theoretically, a gain should be calculated and the wife's base cost is whatever his disposal value would have been which would give the husband neither a gain nor a loss.  In most cases (but not this one) the wifes base cost is equal to the husband's cost.  The legislation does not say spouse inherits the cost.  It says that the husband's disposal value is ".....neither a gain nor a loss would accrue on making the disposal"

If the property is transferred at any time during the period of the occupancy of the wife, the whole gain is exempt as it has always been her PPR during her period of ownership. 

If it is transferred before wife takes up residence, then there is potentially a period which is not covered by PPR relief.

There is no apportionment, no need to live in it for a complete tax year.  Provided the quality of the occupation is good, all that is required is for the wife to live in it as her PPR.   Husband of course, cannot have another PPR at the same time.

It really is as simple as that.

Kingmaker,  whether or not you regard it as "aggressive" is irrelevant because most advisors connected  with property are aware of it is fairly routine tax planning. 

I believe, but cannot be sure, that it has been covered by Tax Adviser magazine in exactly the same simple terms of which I have outlined.

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Portia profile image
By Portia Nina Levin
24th Apr 2015 15:22

(No subject)

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By dhjjessel
24th Apr 2015 14:20

I am amazed there isn't a stock answer for this! Can you send me the link to the piece in tax adviser magazine?
Thanks

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By User deleted
24th Apr 2015 14:49

If the PPR is the unclear part then it is pretty clear:  

if they move in to the property first and then transfers the property to the wife whilst the property IS their only or main residence (s.222(7) then the wife acquires X's ownership history for PPR purposes.

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By dhjjessel
25th Apr 2015 08:37

Thank you

So say it became their PPR and he then transferred full ownership to her, then she sold it soon after, would the property be treated as her PPR:

1. For the recent period where they have lived there together, and

2. For the 3 years he lived there as his PPR when he was a batchelor 7 years ago

 

Thanks again!

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Replying to Wilco707:
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By User deleted
25th Apr 2015 13:03

PPR

dhjjessel wrote:

So say it became their PPR and he then transferred full ownership to her, then she sold it soon after, would the property be treated as her PPR:

1. For the recent period where they have lived there together, and

2. For the 3 years he lived there as his PPR when he was a batchelor 7 years ago

Thanks again!

1. Yes, provided the quality of occupation qualifies as the main residence.There is no minimum period of residence specified and neither HMRC do insist on it

2. Yes

3. Letting relief - NO the transferee doesn't acquire it

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Replying to paul.benny:
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By dhjjessel
26th Apr 2015 10:11

Thanks taxguru

And regarding 3, what if the transfer occurred while it was not their PPR? See this article for example

http://www.krwaccountants.co.uk/does-a-loss-making-rental-property-need-...

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By dhjjessel
25th Apr 2015 08:41

And regarding private letting relief, will it be lost if he transfers ownership to her?

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By dhjjessel
25th Apr 2015 15:13

I wonder why Portia deleted her comments?

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By User deleted
26th Apr 2015 12:16

In order for letting relief s.223(4) to apply the wife should have let it wholly or partly as residential accommodation which is not the case here.

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By Xi Ng
26th Apr 2015 13:02

"Lettings relief"

If the transfer is made when the couple occupy the residence as their main residence, the transferee acquires the transferor's entire history, and that includes entitlement to so-called "lettings relief."

The article you have linked to refers to the case where the transfer is made before the couple occupy the property as their main residence. In that case, the transferee's ownership period only commences from transfer, which may mean that the entire gain for the transferee will be covered by OMR.

These points had been covered.

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Replying to Russ Homer:
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By User deleted
26th Apr 2015 19:34

I disagree, Xi Ng

Xi Ng wrote:

If the transfer is made when the couple occupy the residence as their main residence, the transferee acquires the transferor's entire history, and that includes entitlement to so-called "lettings relief."

Please carefully re-read s223(4). (Having first re-read s222(7)(a).)

 

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By Xi Ng
26th Apr 2015 19:54

"By him"

I have re-read them, and I understand your point, but I disagree with you.

Assuming a transfer from H to W, s 222(7)(a) deems W's period of ownership to have begun when H's period of ownership began. That means that both H and W are deemed to have been owners throughout H's period of ownership, including when it was let by H. One owner (or deemed owner) cannot let the property all by themselves.

Disclaimer: Advice given on internet forums can be, and often is, wildly inaccurate, and should not be used as a substitute for the advice of a suitably qualified and experienced professional, armed with all the facts, and being paid a suitable fee.

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By User deleted
26th Apr 2015 20:10

Ownership

s227(a) says that in the appropriate circumstances the transferee's period of ownership is deemed to commence at the same time as that of the transferor spouse. Nothing more, nothing less.

So, having established the notional period of ownership for the transferee spouse, did that person - as a matter of fact (because there is no reference anywhere to a deemed period of letting) let the property during that same period? If the answer is no, no letting relief for the transferee spouse.

Your disclaimer is quite appropriate.

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By Xi Ng
26th Apr 2015 20:26

As I say, I disagree

Unless you have case law to support your interpretation, we must agree to disagree.

I also overlooked mentioning that, on the facts given by the OP, if the transfer happens while H&W occupy the house as their main residence (H having previously so occupied it), then a 3 years slice of their gain attributable to the period of the letting might also get OMR, by virtue of s 223(3)(a), being a period of absence (as defined in s 223(7), now (7B)), if their was no other residence qualifying for the same period.

Disclaimer: Advice given on internet forums can be, and often is, wildly inaccurate, and should not be used as a substitute for the advice of a suitably qualified and experienced professional, armed with all the facts, and being paid a suitable fee.

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By User deleted
26th Apr 2015 20:35

I don't need case law

Just common sense and an understanding of the English language.

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By Xi Ng
26th Apr 2015 20:43

Understanding the English Language

And I don't understand the English Language because I'm foreign, I suppose?

Common sense says that if the legislation deems both to have been owners for the same period - there is nothing notional about it; "the [transferee]'s period of ownership shall begin with the beginning of the period of ownership of the [transferor]" - then it must, being otherwise silent on the issue, deem it to have been let by both persons that it has deemed to have been owners of the property, in accordance with the law of the land.

In the absence of case law, you must though go with your superior understanding of the English Language.

Disclaimer: Advice given on internet forums can be, and often is, wildly inaccurate, and should not be used as a substitute for the advice of a suitably qualified and experienced professional, armed with all the facts, and being paid a suitable fee.

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By User deleted
26th Apr 2015 21:09

I have no idea ...

... why you are unable to understand the wording of the legislation.

Why must the property have been deemed to have been let by both persons?

Each spouse needs to compute their gains separately. Step 1 (after identifying main residence etc) - establish the period of ownership. It is well-established that s222(7)(a) does nothing more than establish when that period commences. And that it exists solely for computing the amount of main residence relief - no other purpose should be imputed.

Step 2 - for the person for whom you are computing the gain, find out whether they did let the property at any time during the period established at step 1 (a requirement of s223(4)) - not whether they are to be treated as having so let the property.

As you say, we will need to agree to disagree - though I do agree on the content of your disclaimer. Perhaps someone else will be good enough to offer an opinion on the topic?

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By User deleted
26th Apr 2015 21:39

S.223(4) is about .....at any time in his period of ownership been wholly or partly let by him.... There is no reference to any 'deemed ownership' here, so not too sure what the argument is about.

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By User deleted
26th Apr 2015 22:14

taxguru

s222(7) defines "period of ownership" for the purposes of s222 to s226 (and that is all that it does). The argument is about whether it does something else - which it does not.

I think where Xi Ng is going wrong is reading s222(7) as treating both persons as jointly owning the property during the transferor's period of ownership. A rather odd interpretation of the legislation.

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By Xi Ng
26th Apr 2015 22:27

I agree

I am struggling to find the section in the legislation where the transferee's period of ownership (having begun when the transferor's period of ownership began) ends immediately before any period of letting and recommences immediately after such a period.

So we take H's share of the gain and we examine his period of ownership to establish how much main residence relief is available under s 223.

When we get to s 223(4) we consider whether there is a period during his period of ownership when the dwelling house has been let by him [as owner] which would otherwise give rise to a chargeable gain.

Identifying such a period, it is common ground that such relief should be given.

Then we take W's share of the gain and we examine her period of ownership (which commenced at the same time as H's, and ceases on disposal - s 222(7) again refers) to establish how much main residence relief is available under s 223.

When we get to s 223(4) we consider whether there is a period during her period of ownership when the dwelling house has been let by her [as owner] which would otherwise give rise to a chargeable gain.

Here, BKD says that there was no such period, because during the period of the letting it was let by somebody else, ie H.

We didn't do that for H though. We didn't say "perhaps it wasn't let by H, and maybe it was let by somebody else". Instead we assumed that it had been let by H by inference; that it was let by H, as owner of the property, falling as it did within H's period of ownership.

I am simply suggesting that s 223(4) should be interpreted in the same way for W as it is for H, and exactly the same inference should be made. We are after all working through the whole of s 223 using a period of ownership that started and ended at the same time with, all things being done as occupiers being equal, and all things being done as owners being (necessarily under property law) done by all owners.

You'll be asking me next, why, given the inference that I'm making s 222(7)(b) is even necessary.

Incidentally, my disclaimer is worded so as not to just apply to me, you will notice.

Disclaimer: Advice given on internet forums can be, and often is, wildly inaccurate, and should not be used as a substitute for the advice of a suitably qualified and experienced professional, armed with all the facts, and being paid a suitable fee.

EDIT: Crossed with BKD's latest post, and where I am "going wrong" is just BKD's opinion.

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By User deleted
26th Apr 2015 22:55

222(7)(b) ...

... simply establishes what part of the transferor's period of ownership is to be treated as a period of main residence of the transferee (not as any period of letting by the transferee). It is as simple as that.

Your analysis is becoming ever more absurd. The reason that "we didn't do that for H" is because there was no need to. H did, as a matter of fact, let the property during his period of ownership - no assumption, no inference, no guesswotk, no deemed period of ownership/letting, required.

For the hard of understanding, s222(7) does nothing more than establish the period of ownership for the mathematical purpose of computing the amount of main residence relief - it does not deem the property to have actually been owned (and/or let) by any particular person. It's not a difficult concept.

Here, BKD says that there was no such period, because during the period of the letting it was let by somebody else, ie H

No I didn't. BKD says that there was no such period, because W has never let it - regardless of whoever else may have let it.

H buys property on 1 Jan 2000, lives in it for 3 years and then lets it until 31 Dec 2014. He marries and he and W move into the property. H then transfers entire property to W, who sells it 4 years later.

Question 1 - when did her period of ownership, for the purposes of computing the amount of main residence relief, begin? s222(7) tells us that it was 1 Jan 2000. It doesn't tell us anything else.

Question 2 - per the wording of s223(4), did W let the property at any time between 1 Jan 2000 and date of sale? Only an idiot would answer in the positive. But that is just my opinion.

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By Xi Ng
27th Apr 2015 00:09

Then I am guilty of idiocy

Because I consider that W gets the relief in the circumstances described.

Perhaps we can agree on a few things though:

That s 222(7) is immediately derived from CGTA 1979, s 101(7).That s 223(4) is immediately derived from FA 1980, s 80.That the above two deriving provisions existed in their current construction pre-independent taxation.That pre-independent taxation it would have been absurd for the relief not to have been available on a disposal by the wife in your example.

Which of those points, if any, would you disagree with?

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By User deleted
27th Apr 2015 09:45

What I disagree with ...

... is the folly, some would say idiocy, of referring to dead legislation to try and make a point.

Specifically, I would disagree with your fourth point. There is nothing absurd about following the legislation (save, perhaps, when the legislation is itself absurd - which I do not believe to be the case here).

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By User deleted
27th Apr 2015 17:10

I'd rather ...

... rely on the precise wording of the legislation than on the imprecise wording of HMRC's guidance - which has no legal standing.

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By rocket_queen
29th Apr 2015 10:53

A slight twist on the scenario

I have been reading the above as it is similar, but different to my scenario.  I am currently selling a property which I expect to make a loss on so this will not really apply, but out of interest, if we pretended there was a significant profit, what would you suggest in this scenario.

 

Property bought in September 2004 by me, but lived in by me and me then boyfriend from day 1.

Boyfriend joined the armed forces in May 2007 so moved out of the property to live in service accommodation (although irritatingly was still classed as a resident for council tax purposes so I wasn't eligible for single person discount).

Married boyfriend in August 2008.

Moved out of property and into army married quarters in November 2008.  Property let to tenant.

Finally got around to transferring property and mortgage into joint names in October 2012 (it was on the to-do list for a while).

Tenant moves out April 2015 and property goes on the market.  We'll pretend it sells for a significant profit at this point.

 

I am no tax expert but would assume that on my share of the property I would get PPR relief for the time I lived there, three years whilst away, and I believe the last 18 months (I'm a bit shaky on the "deemed" residence rules)?  I would then get letting relief for the rest of the time.

What about my husband?  It WAS his residence before joining the army, but while he lived there he was neither married to me nor an owner himself.

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By cfield
29th Apr 2015 13:37

BKD is right

BKD is absolutely right. Section 222(7) refers only to the period of ownership and para b) refers only to "main residence". A deemed period of ownership or main residence does not mean that there was a deemed letting period too.

Hence, the wife gets PPR relief for the same period as the husband but not letting relief. This is perfectly logical, as the letting income will already have been assessed 100% on the husband.

What no one has touched on so far is the trade-off between sacrificing between 0 and £20,000 worth of letting relief and gaining AE for the wife. As we don't know market value or base cost, no advice can be given on this.

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By User deleted
29th Apr 2015 14:02

Sorry, rocket_queen

PPR is complicated enough without having to waste time considering hypothetical scenarios. I'm out.

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By rocket_queen
29th Apr 2015 15:05

Thanks @cfield

To clarify, husband has never owned any other property.  Our intention has always been to return to the property after he has finished in the armed forces, or to sell it for an alternative property if we don't return to the same area or want to move somewhere bigger.  Whilst this is theoretical at the moment as the property is on the market and we expect to make a loss, we are considering re-letting it and selling it at a later date when it's hopefully got a higher value.  Obviously we can't undo changing it into joint names, but it is useful when planning to consider the effect of it now being in joint names.  We had never intended to sell whilst we were still in SFA, however after a particularly disastrous tenant I have been somewhat scared off from being a landlord.

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By CrowtherP
01st May 2015 16:46

Section 222 and 223(4) has express ownership rules

I agree with Mr. Ng's posting of 26th April.   I disagree with BKD.

In Court, I would argue that section 222(7) naturally makes H and W joint property owners, from the date of the start of the ownership of the original buying owner.

Thus when the property is let, the beneficial owners are specifically under the wording of 222(7) "In this section and sections 223 to 226" both of the persons, and not one sole person.   The law must be read as one connected part, to make good sense of it.  Each clause or paragraph does not stand on its' own.    And 223 (4) talks of "at any time in the period of ownership".    So who is the landlord?  Answer: The landlord for the rental income is the owner of the property.  

Nowhere does section 223 TCGA ask who is the taxable person, on the prior letting income.   223 (4) refers to "let by him as residential accommodation."   Well, we have just been told in 222 to specifically treat this period as a period of joint ownership.  Therefore they are specifically the joint owners.  Therefore, they are the landlords, at the time of the letting.   They are thus entitled to the letting income FOR the express Purposes of section 223 and 224 TCGA 1992.  

If you disclose properly, in SA100 tax return, I believe this to be accurate.

 

 

 

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By User deleted
01st May 2015 17:01

Strange interpretation

s222 does not tell us that any period is to be treated as a period of joint ownership. It tells us that for the purposes of computing the amount of relief (and for no other purpose) the transferee's period of ownership is treated as beginning when the transferor's period began.

I see no problem in reading the sections of the legislation independently, because they serve different purposes. You ask who the landlord was when the property was let. As a matter of fact, it was the husband. Because he, as owner of the property at the time, was the landlord. Neither s222 nor s223 operates to deem that someone else actually owned, or let, the property. s222(7) is a computational provision determining the denominator in the calculation of main residence relief - nothing more, nothing less.

Good luck in Court.

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By CrowtherP
01st May 2015 17:34

The landlord of the property is the beneficial owner.

The landlord is the owner.   The owner is deemed to be both H and W.    Thus H and W and landlords under section 222, as applied to 223.     "...the other's period of ownership shall begin....".  

Section 222 does exactly that.  It makes W the legal / beneficial owner, at at time when H was factually the owner, and when W might have been married to someone else, living abroad or whatever. It flies in the face of the real facts.   But It specifically applies to section 223-224!

To assume the law-maker wanted to block the 40K letting tax relief for the spouse, who was later granted a share of a let and PPR property, by his/her spouse is to assume too much.

222 gives the non-owner spouse equality of ownership under the taxing law, from the time of the start of the period of his or her ownership.  We should thus, I think, agree to disagree.

I suspect, depending upon the Judge, either case could win in a Court.   Each verdict could be deemed accurate.

 

 

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By michaelblake
01st May 2015 17:59

Ng is correct BKD

I am afraid that Xi Ng is correct BKD.  TCGA 1992 Section 222(7)(b) attributes the transferors history of ownership and occupation for all the purposes mentioned in Sections 223 to 226. That is what the opening to s222(7) says. The point is confirmed by two specialist works. See for example   

Paragraph 30-225 on page 40 of the 5th edition of CGT and the Private Residence Smith & Williamson (CCH)   .. 

"moreover  by s222(7)(b) on a disposal by the transferee that person can count any period of residential occupation of the property by the transferor as if it were his or her own, regardless of the true position and regardless of the fact that part of that period may have fallen before the parties were married or became partners. The absence of the transferor from the property is also attributed to the transferee. This rule does not affect the base cost of the transferee which is in effect the relevant fractio of the transferors cost for a lifetime gift (s58(1))"

There is actually an example at  paragraph 12.3 on page 177 of Matthew Hutton's book Tax Planning for Private Residences Third Edition (Tolleys) that illustrates how a transfer of a half share in a private residence from husband to wife would double the relief under s223(4) for a period of letting that took place before the transfer. 

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By User deleted
01st May 2015 18:04

s222 does nothing of the sort

It does not make W, or anyone else, the legal/beneficial owner. For the last time, it is nothing but a computational provision.

Reluctant as I am to cite HMRC guidance - "This provision only applies for the purpose of computing private residence relief. It has no effect on the computation of the gain which arises on any disposal by the transferee spouse"

It is a well-established principle that the extension of the period of ownership can have a detrimental effect on the transferee spouse's position.

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By User deleted
01st May 2015 18:39

Michael

You're making the same mistake.

I don't have access to Tolleys at the moment, but to refer to the other points that you make:

s222(7) makes no mention whatsoever of occupation. All that it says is that the period of ownership is extended. There is nothing to suggest that the owner's use of the property is also transported to the spouse - other than to say that periods of main residence of the transferor will be treated as periods of main residence of the transferee. There is no reference as to how periods of non main residence are to be treated, in particular nothing anywhere that says that periods of letting by the transferor are to be treated as periods of letting of the transferee. That could quite easliy have been accommodated by a different wording to s222(7)(b) (or indeed 223(4) - but it is not.

Again, the S&W extract simply refers to the period of ownership. I don't see any reference there to an imputation of deemed letting or other use of the property.

I will reserve final judgement until I have seen the Tolleys example referred to - though it would not be the first time that Tolleys (or CCH) have been wrong. (Nor indeed myself.)

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By HARRY SINGH
03rd Dec 2015 09:55

PRINCIPAL RESIDENCE RELIEF

Dear All, 

First time on this site and wonder if someone can offer some guidance. I bought my house on 12.2.82 for £32,000 and is now worth about £435,000. My girlfriend moved in with me in March 2007 and we married on 24.1.09. We moved out to our current house on 1.2.11 and the old property was let as of 28.2.11. On 1.4.13, I transferred the whole of the old property to my wife's name as she is a lower rate tax payer. I understand that my 29 years of PPR has been lost as the transfer was done at a time when we were not living in the property and our main residence was the new house. Is there any way that I can reclaim my 29 years of the lost PPR?

Thank you.         

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By PeterBalhma
21st Aug 2017 15:01

A nephew of mine owns a rental properties in their own name.

It was his PPR for 2 years , let it for 13 years
So he has owned it for 15 years.

He moved and kept the property and the moved to his new PPR the gain is about £200k

There was a link since removed that said if he gives the rental property to his wife whilst it is rented say December 2017 this year. They move in in January 2018

It will be counted as her PPR from December 2017.

She sells it in say December 2019 I am assuming that she would only be taxed on 1/24 of the gain?

This is not theoretical question he would be happy to pay an accountant to prepare the tax return of his wife for the 2018/2019

If it is simpler than this that is fine he would still wish an accountant to sign this off and prepare the tax return for that year . I am happy to be contacted directly on this

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Replying to Justin Bryant:
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By PeterBalhma
30th Aug 2017 09:43

Thanks for the reply this action is not to take place for a while. I will in particular show my nephew the link , he may well contact you at the time

Thanks again I am not on accounting web that much so I did not reply earlier

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