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CGT PPR following spouse transfer

Does spouse get any PPR relief if never lived in house

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Scenario as follows -  timeline : 

2000- Mr A buys House . lives in as PPR as a single person .

2010 - Mr A buys a Bungalow moves in as new PPR ,  and lets House 

2015 - Mr A meets and marries Mrs A and they both live at Bunglaow 

2020 -   Mr A is consdering gifting 50% of  House to Mrs A . (no gain no loss no CGT  ,    no mortgage  so no SDLT) 

My query concerns CGT on an eventual sale  to a third party : 

If the House stays in Mr A's sole name I think its quite clear he will get 10 years worth of PPR on whole gain, plus final 9 months so just over half the gain PPR as it stands .

But what happens if he gifts it and they later sell jointly .   Does Mrs A get any PPR .?    bearing in mind that she has never lived there .

I am reading section 222(7) TCGA 1992 and this would indicate in para (1) that for her to get any PPR the , the transfer must be a propery which is his PPR .       (note the word "is" ,  not "was" or "has been" ) 

It is not his PPR at time of transfer of half to Mrs A ,   so I think the answer is if he gifts half to her ,  then if they sell later , on eventual sale he gets PPR on 10 years of occupation on his half share    , but she gets no PPR at all .

There is a significant gain at stake here 

a sanity check on this would be welcome thank you 

 

 

 

 

 

Replies (18)

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By Wanderer
03rd Aug 2020 13:52

Your understanding is the same as mine.

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By jonharris999
03rd Aug 2020 14:27

Agreed. She never lived there.

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By Rweaver
03rd Aug 2020 16:04

Errrr.... what about the change enacted in FA2020 s.24(2)(b)?

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Replying to Rweaver:
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By Tax Dragon
03rd Aug 2020 16:34

Agreed. It removes the "is" point above and so makes the subsection easier to read correctly. You then get the same answer as the OP reached above by correctly interpreting the old, more tricky, wording.

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Replying to Tax Dragon:
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By Rweaver
03rd Aug 2020 17:01

Tax Dragon wrote:

Agreed. It removes the "is" point above and so makes the subsection easier to read correctly. You then get the same answer as the OP reached above by correctly interpreting the old, more tricky, wording.

Interesting. When I read the amended subsection I reach the opposite conclusion to the OP.

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Replying to Rweaver:
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By Tax Dragon
03rd Aug 2020 17:08

Crossed in the posting. As noted (below?), I should have read (to) the final conclusion, not just the "is" analysis.

Apologies.

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Replying to Tax Dragon:
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By Tax Dragon
03rd Aug 2020 17:12

And now it looks like my reply (which is indeed below) was a reply to the comment to which this comment is actually a reply(*). It's not. It's a reply to my first comment (above).

This forum's format is all over the shop. And it's making me look like I'm talking to myself.

(*) or even to this comment.

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Replying to Tax Dragon:
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By Tax Dragon
03rd Aug 2020 17:05

I (half) take that back. Should have read the whole OP.

The answer is no longer the same. Old 7a did not apply, new 7a does; since 7b applies (only) when 7a applies, it applies now whereas it would not have applied under old 7a.

Good news for you(r client); bad news for my misreading tally today.

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Replying to Rweaver:
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By Wanderer
03rd Aug 2020 17:11

Bows down to esteemed colleagues, there's me reading out of date legislation (yet) again!

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By Ianhodges
03rd Aug 2020 18:32

ok thank you for all the help ,
so as I see it now , pre FA2020 Mrs A would have got no PPR quite clearly .
But as a result of S24 FA2020 (2)b , she is treated as having lived there between 2000 and 2010 (because he did) and she gets PPR for those years - even though she never lived there .(and her main residence in reality for those years would have been elsewhere as a single person before she met Mr A ) . Taking out a few words of legislation has apparently given us the opposite answer now.
I do wonder if that was what was intended of the legislation , it really does defy logic , and I would not want to be a test case at FTT ! safe option might be to keep it in Mr A's sole name

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Replying to Ianhodges:
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By Rweaver
03rd Aug 2020 20:37

Plus the final 9 months.

The effect created is PRECISELY the intention, to eliminate planning surrounding the previous wording and washing-out gains.

There’s really no risk to changing ownership and wife making a PPR claim.

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Replying to Rweaver:
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By Tax Dragon
04th Aug 2020 08:18

Agreed. Prior to FA2020, a married couple was 'penalised' by the NGNL rule leading to a loss of PRR (cf position of unmarried couples). But they could play the game the other way and benefit unfairly too. The changes level up the playing field and are intended as much to avoid the loss of relief on transfers between spouses as to block the avoidance plan.

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Replying to Tax Dragon:
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By Martin B
04th Aug 2020 16:03

Sorry to be thick. So in summary, with the circumstances mentioned by OP- by gifting 50% of the house to Mrs B, now will not have an adverse CGT impact on eventual disposal of the house.
On eventual disposal of the house, both Mr A and Mrs B will get PPR and last 9months exemption-. Is this correct?

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Replying to Martin B:
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By Tax Dragon
04th Aug 2020 16:21

Don't apologise. Nowt wrong with being thick. I've been called that and probably far worse (in here, especially).

The effect of s222(7)(b) is to deem (where deeming is necessary - i.e. when the donee spouse did not in fact live in the property) occupation by the donor to be also that of the donee.

This is necessary because s222(7)(a) deems the donee to have owned the property for the same period as the donor. There would be a loss of relief if you had to inherit ownership without also inheriting occupation - which does seem unfair. (With an unmarried couple, the donee inherits neither - so no loss of relief.)

Previously, (a) - and therefore (b) - applied only if the "is" condition applied, as the OP explained. Now, (a) - and therefore (b) - apply most times. [There might still be some 'funnies', but they are probably few and far between now.]

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Replying to Martin B:
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By Tax Dragon
04th Aug 2020 16:52

Incidentally, FA2020 hasn't changed s222(7)(b). I'm not aware that it has ever changed. So it's a bit worrying that its effect seems so alien to people.

Anyway.... for further comfort on this, see the HMRC comment "Additionally you should allow relief to the transferee for any part of the extended period of ownership in which the property was the only or main residence of the transferor" in CG64953. The pages either side of that explain a bit more, but I'm not sure the examples help as much as they perhaps could.

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Replying to Tax Dragon:
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By Martin B
04th Aug 2020 16:04

Sorry to be thick. So in summary, with the circumstances mentioned by OP- by gifting 50% of the house to Mrs B, now will not have an adverse CGT impact on eventual disposal of the house.
On eventual disposal of the house, both Mr A and Mrs B will get PPR and last 9months exemption-. Is this correct?

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Replying to Martin B:
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By Tax Dragon
04th Aug 2020 16:27

Martin B wrote:

On eventual disposal of the house, both Mr A and Mrs B will get PPR and last 9months exemption-. Is this correct?

Sounds about right. He gets what he would have got on his half of the gain; she gets what he would have got on the other half if he hadn't gifted it to her (i.e. she gets what he gets). On that specific example - be careful generalising from one example. See my longer comment the first time you asked.

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By Ianhodges
05th Aug 2020 09:45

thank you. interesting .
The result as I see it therefore is there is no disadvantage to transfer to joint names , because Mrs A will get PPR on a sale as if she had lived there between 2000-2010 (+ last 9 months) even though she never lived there and wasn't married to Mr A during that time , and also lets imagine if she owned her own house elsewhere as a single person between 2000-2010 which would have been an exempt PPR for her throughout that time that is not a problem we are saying ? , generally speaking a person can only have one PPR at a time (with a bit of overlap ) , here she is treated as having 2 exempt PPRs for that 10 year period . I will read the legislation and HMRC manuals over again , it still nags me theres something not right I cant put my finger on .

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