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CGT Mitigation

CGT Mitigation

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Dear all

Excuse my recollection but a conversation with a client today has jolted it back into action....!

One of my clients has today informed me they are selling their main house (owned and lived in since 1990) and will be moving in to the house that the wife has owned and rented out since 2000 - this will be genuine occupation - no tricks! 

She purchased it in 2000 for 150k, now worth £350k.

On a recent course a CGT refresher course (in June 2013 with a well known lecturer) the lecturer alluded to the above type of scenario and stated that - if memory serves me correct - that if the property is gifted by the wife to the husband PRIOR to occupation her gain will be interspousal and so exempt, but his gain (if he sells in say 5 years) will attract no CGT tax charge on disposal as the property will have been his PPR for the whole period of his ownership.

Am I missing something - I think not. I think the gain will be exempt when he subsequently sells The illustration from the notes stated that (amended in some areas to avoid copyright issues) - Thoughts......

Mr and Mrs X have been living in Street A for many years but intend to move to Street B 10 years’ time when he retires.
While they are still in Street A, Mr and Mrs X arrange to buy a house in Street B in their joint names which they intend to let out prior to their retirement.
Following their retirement, any subsequent sale of the house in Street B is likely to precipitate a CGT charge for each spouse, given that, for the 10 years prior to their retirement, the property had not been either spouse’s sole or main residence.
One option is for Mr X to purchase the house in his own name and let the property out as planned. Shortly before retiring and moving to Street B, Mr X transfers his entire interest in the property to his wife.
This transaction is deemed to take place at the date of the transfer and is done on the normal no gain no loss basis. And their is no backdating because at the time of the transfer, the house in Street B was not the couple’s sole or main residence. On any future sale by Mrs X, the entire capital gain is exempt because the house qualifies as the wife’s sole or main residence throughout her period of ownership (Mr Xs period of ownership, when the property was let, is irrelevant).

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By Steve Kesby
17th Sep 2013 11:18

S. 222(7) TCGA 1992

Are the well known lecturer's initials RJ, by any chance?

Yes, S. 222(7) operates so that the recipient spouse inherits the transferor spouse's ownership history, but only if the transfer takes place while the property is occupied as their only or main residence.

So in your situation, if W transfers all or part of the property to H immediately before they occupy the property as their only or main residence, H's period of ownership of the part transferred begins at the date of transfer.

If the transfer took place after it is occupied as the only or main residence, H acquire's S's ownership history for the part transferred.

It works the other way two. If an individual has a property that they now occupy as their only or main residence, which thay have owned for say 10 years, but which was let for say the first 3 years. They then marry and the spouse moves in or already lives there.

In that situation, a transfer then gives the recipient spouse an ownership history that extends back before the marriage, so two lots of lettings relief and two annual exemptions.

In both case it can reasonably be viewed to be a reasonable course of action in all the circumstances and so woouldn't be an abusuve tax arrangement. IMHO.

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By Martin B
17th Sep 2013 16:59

cgt mitifation- transfer between spouse's

flagging

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By julian.sims
17th Sep 2013 17:07

Both ways

This is one that can work in t/p's favour or against them.

The alternative situation is where one spouse owned and occupied as PPR, but then moves into joint PPR (perhaps on marriage) and lets original property.

If then transfers into joint names, there is no transfer of ownership history (as outside s222(7)) and new joint owner has never occupied as PPR so full gain chargeable on their share!

I wonder if this is an opportunity for real simplification and allow ownership history to be transferred whether or not occupying as PPR at the time of transfer.  Would remove an option for (what some would consider) abuse and remove a pitfall for the uninformed.

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By Ding Dong
18th Sep 2013 12:54

Thanks for the responses

and yes Steve - you have the initials correct!

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