Capital gains tax (Private Residence Relief) and putting a “let to buy” house into joint names (with wife).

Capital gains tax (Private Residence Relief)...

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I let out a house that was my “principal private home” before we got married.   Our mortgage advisor would like the house in joint names to ease getting a new mortgage.

Would putting my wife’s name on the deeds effect us getting Private Residence Relief when the house is sold? (My wife never lived in the house)

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By TaxationPete
22nd Aug 2010 11:57

Bad Idea

Your advisor should know better. As your wife has 'never lived in the property as an owner' then the effective transfer of 1/2 the property to her ( assuming the deeds are changed, usually are by the mortgage company ) will loose 1/2 the PPR exemption. On disposal your wifes CGT liability will have no exemption and you will have PPR apportionment only on your share and up to £40,000 of potential letting relief. Also remember that only the interest on any mortgage against the rental property is deductible if the mortgage is equal to, or les than the value of the property when 'first let'.  Regards Peter

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By ringi
22nd Aug 2010 12:59

“cost bases” of asset remained the same?

Thanks, I thought that with a transfer between married partners that the “cost bases” of asset remained the same, unlike any other transfer where it got reset. But does the PPR exemption form port of the cost bases?

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By TaxationPete
22nd Aug 2010 17:08

Yes

The effective interspousal transfer to the wife will be done on a no gain/no loss basis, CG64950 comes to mind so she will inherit the transferors base value. If they were living together in that property at the time then she would also inherit the PPR and LR entitlement, but alas they are not and she does not inherit those relief's on her new share but he losses them from his share. Allow me to expand on that. If he transferred the entire property to her then she would not be entitels to any PPR or LR on disposal but would have aqcuired the property at the transferor's original acquistion cost. Regards Peter

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By ringi
23rd Aug 2010 10:50

“Tenants in Common” with a 99%:1% split?

The Building Society is happy with “Tenants in Common” with a 99%:1% split.

As I understand it, this will meen my wife will only get hit for 1% of the capital gains that will be well within the capital gains tax allowance. - Have I missed anything?

(We can then use form 17, so she only pays tax on 1% of the rent.)
 

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By TaxationPete
23rd Aug 2010 11:16

Correct

However, 1% whilst minimising her rental income would not mop up her CGA of £10,100 on disposal but it is crystal ball stuff to know what pecentage would be right. You may have to alter the ownership ratio using a Declaration of Trust prior to any disposal to allow you to use two full CG Allowances. As this ownership appear to be TinC then it will have to be addressed in their individual wills as it will not automatically pass to the surviving spouse. That only happens with Joint ownership.

Regards Peter

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