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Capital disposal - Part PPR claim

Capital disposal - Part PPR claim

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A client and his sister have in the last year disposed of a property they owned jointly. This was gifted 50/50 to them in 1996 by their mother and prior to that was her PPR on and off since she purchased it in 1978. Since 1996 each of the brother and sister have lived in it - Sister 7 years (1996 - 2003), brother 5 years (2003-2008) and then rented out to 3rd parties for last four years. (2008-2012)

During the periods of occupation neither the brother nor sister paid any rent to the other.

No Base cost was ever established in 1996 (solicitor of the mother said not needed or something) but research of land registry/similar sales leads us to accept that £150k was the value at the time.

The disposal proceeds in 2012 were £500k so a large £350k gain has been made. £175k each.

My query is over the amount to claim for PPR and whether or not the periods when the property was not let nor available to be let as it was occupied by the joint owners affects the amount that will be taxable. 

So, using the sister, I see her gain as being exempt for 10 of the 16 years (7 occupation plus last 3 as deemed) and she can then claim lettings relief (restricted to £40k) on the remainder of the gain. Therefore;

  • 175k gain
  • less PPR relief of £109k
  • Gain before Lettings relief £66k
  • Lettings relief £40k
  • Taxable Gain £26k
  • Tax due at 18% after annual allowance £2.8k 
  • (Brother similar but only 8/16ths exempt and as he is higher rate taxpayer tax due is £10.3k)

apart from the issue of ensuring 1996 base cost is "reasonable" anyone for see any glaring errors

Replies (8)

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By Steve Kesby
28th Aug 2013 16:20

The letting gain...

... for each of them seems to me to only be 1/16th of the gain (ie just under £11K, rather than £40K); the one year that it was let that doesn't fall within the last three years already covered by PPR. Rent-free occupation by the other joint owner isn't letting.

Did they have any other residences available to them at any stage? and if so, did they make an appropriate election?

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By Ding Dong
28th Aug 2013 17:33

Thanks Steve

Your answer query over the period of ownership when the property was not let was the answer I was hoping for!

So essentially each joint owner's gain in restricted to only the time it was let "commercially" less the last three years deemed ownership thus 1/16th as you say - so the gain in total would therefore be covered by the lettings relief (or am I missing something?)

With regard your other question, there were not other properties available (I will check though) and no there were not any s222 or other elections made.



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By thehaggis
29th Aug 2013 01:47

The Letting Gain?

What is meant by the letting gain?  The gain accrued whether or not the property was let.

The gain is £350K, which can be reduced by reliefs.  These will be PPR relief and letting relief, as per your original computation. But be prepared to justify the PPR relief with evidence of occupation, and do the calculation in months, not years. . 

Thanks (1)
Replying to johngroganjga:
By Ding Dong
29th Aug 2013 09:37

Thanks Haggis, above summary was kept in years for simplicity (all incidentals removed too as I am sure everyone didn't need to know those!)
PPR proof is ok as it was genuine occupation and we have exact move dates.
Interesting that you differ from Steves calculation of 1/16th - essentially it appears you are saying I was right first time by only reducing by occupied plus deemed occupation. Still tax due is not too bad on such a large gain!

Thanks again

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By cathygrimmer
29th Aug 2013 09:44

Letting exemption = letting gain

I think you've misunderstood Steve's reply. What he was saying is that the amount of letting exemption is restricted to the gain attributable to letting as it is less than both the PPR exempt amount and the £40k maximum. So the letting exemption will only be 1/16th of the total gain. He wasn't saying that this is the only bit that is taxable!

So the taxable gain for each will be higher than your figures - and will represent the period during which the property was occupied by the other sibling - a period when it was neither 'let' for lettings relief purposes nor occupied by that owner as PPR.


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By Steve Kesby
29th Aug 2013 11:08

Letting gain

Thanks Cathy. That's exactly what I mean; except that, to address the issue raised by thehaggis more directly, there's strictly no such thing as "lettings relief" on a proper read of S.223(4) TCGA 1992; there is an amount that is not a chargeable gain, but which otherwise would be.

The first step is to calculate the amount of the gain that isn't a chargeable gain by reason of occupation/deemed occupation.

For the sister [and brother], as Ding Dong says, that is 10/16ths [8/16ths] of her [his] £175K gain, ie £109K [87½K].

Then you apply S.223(4), which says that "the part of the gain that is a chargeable gain by reason of the letting [what I've called the "letting gain"], shall only be such a gain [ie, a chargeable gain] to the extent that it exceeds..." the lesser of £40K and the gain otherwise exempt (£109K [£87½k]).

The gain that arises by reason of the letting is the last 4/16ths [4/16ths]. Of that 4/16ths [4/16ths] only 1/16th [1/16th] is a chargeable gain (the other 3/16ths [3/16ths] are already not chargeable), ie £11K [£11K]. Since that £11K does not exceed £40K, the whole of that £11K is not a chargeable gain.

5/16ths [7/16ths] of the sister's [brother's] gain, ie £55K [£76½K], has to be a chargeable gain. These proportions correspond to the period of time that the property was occupied as a residence by the other joint owner, and so was not let.

I don't suppose there's any possibility that there was a period of time during which both of them occupied it as a residence?

Thanks (1)
By Ding Dong
29th Aug 2013 13:40

Thank you again

Both Cathy and Steve

I am glad I asked the initial question that has then prompted the replies.

I now see and understand the lettings relief exemption restriction to only 1/16th - Thankyou

I can confirm there was no period in which they both occupied - although there is one other (minor) twist insofar as the sister who acquired her share in 1996 when it was gifted, actually lived there from 1994 two years prior to owning it. I assume that is a non consideration at this stage.



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By Steve Kesby
29th Aug 2013 14:06

Occupation before ownership...

... won't have any effect for the sister, although it might have had an effect for the brother. It's an interesting question.

The deemed occupation rules in S.223(3), require occupation as the main residence at some time before and after the deemed period(s) of absence, but not that they occupied it as such during the ownership period necessarily.

As I say though, that would only affect the brother. I don''t suppose they lived there while they were kids? The brother might be able to find another three years (or perhaps more) that's exempt.

In support of the points that have been made previously, I believe that the following manual references are relevant: CG64710, CG64713 and CG64721.

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