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PPR and transfer of property to spouse

PPR and transfer of property to spouse

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Client purchased a property in Manchester in his sole name in 2011 for approximately 500,000. He immediately moved into the property with his wife. They lived their (main residence) from 2011 to 2016.

In mid 2016 they moved out and started renting the property out and bought another house on the coast that they moved into in 2016.

In early 2018 the original house in Manchester was transferred from the husband's sole name into joint names wioth his wife so now owned 50/50. They are now looking at selling the Manchester house for around 950,000.

He is a HR tax payer; she is a BR tax payer.

When half the house was transferred into her name then her base cost will be 50% x her spouse's base cost .. so 250,000. On sale she is credited with half the proceeds so 475,000 so a gain of 225,000. Same for him.

I am concerned that the timing of the transfer into joint names here may not have been good.

If it had stayed in his sole name he would have got PPR relief on the whole property for the period from 2011 to mid 2016 plus last 9 months at the end.

Now he will get PPR relief against his share of the gain but my understanding of the rules for PPR relief is that as the house was not his wife's PPR at the time she received her share of the house then she gets no PPR relief. Is that correct or can she claim some PPR relief.

If this is correct is there anything that can be done to reduce her CGT liability or to get some relief or is it just too late now. 

 

 

Replies (13)

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By Wanderer
20th Aug 2020 12:25

Have a look at FA20 changes highlighted in this thread to see if they apply to your client's situation:-
https://www.accountingweb.co.uk/any-answers/cgt-ppr-following-spouse-tra...

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By soundadvice
20th Aug 2020 12:59

Thanks Wanderer.

I had a good look through that thread. My understanding then is that if the transfer into joint names had been done after April 6th 2020 then under the new rules she would have been able to claim the PPR in the same way as her spouse if they sell now.

However as the transfer of 50% of the property from husband to wife was made in 2017 (when they were no longer living at the Manchester house) then whilst he can claim PPR relief on his share of the gain she will not be able to claim any PPR.

Does that sound correct?

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By Wanderer
20th Aug 2020 13:13

Well you'll see from that thread that I'm no expert!

I thought colleagues were arguing the opposite? i.e. PPR was available and it was the disposal post 05/04/2020 that was relevant.

I'll leave it those cleverer than me to clarify.

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By soundadvice
20th Aug 2020 13:40

This will definitely be a disposal post 6th April 2020 just concerned that the transfer was in early 2018.
So difficult to interpret the wording of these bits of legislation.
If someone brighter than me (not difficult) can clarify I would be very grateful.

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Replying to soundadvice:
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By Tax Dragon
20th Aug 2020 14:52

soundadvice wrote:

If someone brighter than me...

If you are willing to drop that requirement, you might get more replies.

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By soundadvice
20th Aug 2020 17:53

It was really just meant as a bit of humour in the context of the thread Wanderer sent over earlier on this subject from August 3rd when another colleague took the rise out of himself as "sorry to be thick".

I've looked through that thread from August 3rd again and tried to determine the definitive answer to my question. Have also looked at CG64953 again and the CG's either side of this one but still struggling to determine if its bad news for my client.

The couple moved out of the Manchester house and started renting it out in 2016 and the husband transferred half of the Manchester house to his wife in 2018. They hope to sell it this year.

Just not sure if the new rules from the FA 2020 mean she can claim the same PPR as her husband or not.

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Replying to soundadvice:
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By Tax Dragon
20th Aug 2020 19:31

I'd say not, because old s222(7) applied at the time of the interspousal transfer.

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By soundadvice
21st Aug 2020 09:21

Thanks Tax Dragon much appreciated.

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Replying to soundadvice:
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By Tax Dragon
21st Aug 2020 10:09

It's s24(10) FA 2020 that you needed to find.

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By soundadvice
24th Aug 2020 08:56

Many thanks Tax Dragon that's very clear.
My other thought then would be could she transfer her share back to her husband before they sell the house in Manchester in which case he might then be able to claim the full PPR relief up to mid 2016 when they started to rent out.

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Replying to soundadvice:
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By Tax Dragon
24th Aug 2020 09:29

Would that be sound advice? I feel that you need to live up to your pseudonym a little bit here... what's your take (based on s222(7)) on the consequences of such a transfer? [You might have other issues - Paul Crowley keeps talking about the effectiveness or otherwise of transfers made after the decision to sell has been made - but we can come to those. Let's focus on s222(7) for now.]

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By soundadvice
25th Aug 2020 11:16

Trying to give the best advice I can. I have spoken to a specialist adviser too to try to understand but I still feel uncertain.
I had a look at S222 (7). The date of the first acquisition was 2011 and it was his PPR from 2011 to 2016. I did not advise on the transfer of part of the propertry to his spouse in 2018.
The legislation does not seem to cover the specific situation of a property being transferred from spouse to spouse then back again. I would have thought asset transfers between spouses were pretty common and not a particular problem.
I looked at the Ramsay case which doesn't appear to give a definitive answer in terms of what is and isn't artificial steps to reduce tax. The adviser I spoke to indicated it would be difficult to know how HMRC would interpret this situation and certainly no guarantee could be given to the client on this.
Just not sure on the specific information here whether HMRC, if they picked up on it, would view it as artificial steps to reduce tax.
In terms of the order of things the client is trying to decide whether it is better for them to carry on renting the property out or to sell it. So the decision to sell has not been made yet. They have just asked me what the tax position might be if they sold now and if there are ways to minimse any CGT.

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By Martin B
14th Sep 2020 13:24

PPR and transfer of property to spouse

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