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Tax with Tallon: Topical tax PPR and civil partners

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27th Nov 2006
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Paula Tallon, director of direct tax with Chiltern, responds to accountants' queries.

Question

I have acted for my client for the last 10 years and during that time he has resided at Wells House. Last year he entered into a civil partnership with Martin and shortly afterwards he transferred a 50% stake in the property to him. Martin had lived with him for 2 years before that. They are now looking at selling the property but I am concerned that Principal Private Residence (PPR) relief may not be available. Under s 58 TCGA 1992 the transfer was at no gain/no loss but what about the PPR relief? Will the capital gain made on the disposal of Martin’s interest in the property qualify for PPR? Should I advise Martin to transfer his interest back to my client?

Answer

Before we consider any transfer back let us see if we have relief. The main provisions for PPR are contained in s222 TCGA 1992 and give exemption from tax on a gain arising on a property that has been the only or main residence of an individual throughout the period of ownership. The problem in this case is that Martin only moved into the property 2 years before the civil partnership and your client owned the property for some 8 years before that.

You are correct that the transfer was on a no gain/no loss basis under s58 TCGA 1992. This means that Martin has taken over your client’s base cost. So what is the “period of ownership” in calculating the gain for Martin? Martin will be treated as owning the property from the date that it was acquired by your client by virtue of section 222(7)(a) TCGA 1992.

Even though Martin did not reside in the property during some of the pre-transfer period, on any disposal of the property, it will be treated as his PPR to the extent that it was your client’s only or main residence. This is by virtue of section 222(7)(b) TCGA 1992.

So all is ok!

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