Share this content
3

Save Main Residence Exemption?

Save Main Residence Exemption?

Didn't find your answer?

I have a client whose property was her main residence from purchase on 12./8/89 at £85,638 until marriage in December 1992, since when it has been let. She is unlikely to be able to exchange before 5/4/08. How does she protect both indexation and PPR exemption and lettings relief ?
As far as I can tell, transferring to her husband now would protect indexation of .398 ie £34,083, but surely he would not then be able to claim PPR and lettings reliefs, which is of course extremely valuable, and more than indexation . Also would SDLT be payable on the transfer anyway ?
Current estimated net proceeds of sale would be around £292,950.

Jack Maunders

Replies (3)

Please login or register to join the discussion.

avatar
By Jack the Lad
18th Mar 2008 16:01

Thanks.
Thanks to both contributors for your comments.

Apart from a slightly different indexation figure, my calculations and expectations have been confirmed.

There are children to whom the property may be transferred, but as stated, there might be a problem upon sale as to what happens to the proceeds !
Client has 3 sons, twins age 13 and one 11. I have advised client to do this, thus crystallising all reliefs and allowances for wife, and higher base value for sons.

Additionally, income from property will be less than their APAs so no income tax instead of tax at marginal rates, and when they sell ( some years hence now ) there will be 3 x AEAs instead of 1 !

Thanks (0)
avatar
By Ronnie Stanley
17th Mar 2008 13:03

Transfer to son or daughter?
If there are children, a transfer to son or daughter would be at market value for CGT & son or daughter would acquire at same market value. Presumably indexation, taper, PPR & lettings relief would still apply to parents disposal?

Presumably no Stamp Duty as no consideration passes (if mortgage free).

CGT payable by parents 31 Jan 2009.

And if son sells after 5/4/08, his cost is the market value at transfer, so not much of a gain or loss on his sale if the market value figure used was fairly accurate.

Any IHT problems though? And if son passes back some proceeds to parents, could HMRC attack whole transaction anyway?

Thanks (0)
avatar
By Anonymous
17th Mar 2008 12:37

Good Call
Enter Take 3 in the seach window on this site read then follow the link to the HMRC FAQ pages.

It is very important to remember that transferring the property even by Interspousal transfer looses not only the PPR relief but Lettings relief also dies as the husband has not lived in the property as an owner. SDLT would not apply as this would be a no loss no gain interspousal transfer.

If she sold it now and she had an taxable income of £25000
Capital Gains Summary

Purchase Price £85,638 12/08/1989
Indexation 0.404 £120,236
Legal Fees £0
Sale Price £292,950 14/03/2008
Enhancements £0
Legal Fees £0
Gross Gain £172,714
PPR Relief £58,862 £113,852
Letting Relief £40,000 £73,852
Taper Relief 40% £44,311
CG Allow'ce 1 £9,200 £35,111
CG Bill £11,079

If next month :
Capital Gains Summary

Purchase Price £85,638 12/08/1989
Indexation 0.404 £85,638
Legal Fees £0
Sale Price £292,950 14/04/2008
Enhancements £0
Legal Fees £0
Gross Gain £207,312
PPR Relief £70,338 £136,974
Letting Relief £40,000 £96,974
Taper Relief 0% £96,974
CG Allow'ce 1 £9,600 £87,374
CG Bill £15,727

If Husband owned and sold it :
Capital Gains Summary

Purchase Price £85,638 12/08/1989
Indexation 0.000 £85,638
Legal Fees £0
Sale Price £292,950 14/04/2008
Enhancements £0
Legal Fees £0
Gross Gain £207,312
PPR Relief £0 £207,312
Letting Relief £0 £207,312
Taper Relief 0% £207,312
CG Allow'ce 1 £9,600 £197,712
CG Bill £35,588

HMRC are in fact saying that that they will not strip out indexation on the sale of a property that attracted it.

Note that this owner has topped out on Letting Relief so the CG laibility is accruing faster now. The owner should consider adding the other spouse just before the sale to use both CG allownances.

Regards Peter

Thanks (0)
Share this content

Related posts