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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I purchased a small property in 1999 and lived in it until

Customer Question

I purchased a small property in 1999 and lived in it until Feb 2001. I moved in with my partner and rented this out. We lived in a rented home while I maintained ownership of the first property. We subsequently bought as second property as an investment.

We separated a year ago and divided the properties, she getting the second property. So, I maintain ownership of the first. However, I moved into rented accommodation to be close to our children and work. I am likely to stay here for now.

I am likely to become redundant in the near future and will need to raise capital and may need to sell up. If I wish to avoid (not evade) CGT can I make the property I own my main residence for tax purposes while living in rented accommodation elsewhere? Or do I have to live there now for a period?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

The gain made on the sale of a property is treated as having accrued evenly over the whole period of ownership and has to be divided into tax free and taxable parts depending on its occupation history. So, the gain for the period the property was your main home (1999 to 2001) will be exempt from CGT as will the gain for the last 18 months of ownership even if you were not living in it. The remaining gain is the taxable gain but it will be reduced by letting relief which will be the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 18 months of ownership excluding overlapping months and

3 that part of the letting period gain not covered by the last 18 months of ownership.

You have owned the property for about 14 years. If you move into it for a short period, that won't make all of the taxable gain for the period you were not living there go away I'm afraid. Anything less than 18 months before you sell it would be pointless as you get the last 18 months as an exempt period in any event.

Take a look at the HMRC helpsheet HS283 for more information on CGT and the main home.

 

Finally, there may be a CGT issue on the second property as you gave up your share to your partner who you were not married to at the time.

I hope this helps but let me know if you have any further questions.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Hi Tony


 


Slightly confused. You say the last 18 months qualify for relief, but the form seems to say 36 months.


 


Also, i was and still am married...just separated pending eventual divorce.

Expert:  TonyTax replied 2 years ago.

It was changed with effect from 6 April 2014 to 18 months from 36 months. See here.

You mentioned your "partner" in the question. You never mentioned marriage. Marriage is a significant tax event. I can only give accurate answers if I'm given all the relevant information. Please give me full details and information on who owned what and from when, who lived where and from when, exactly when the separation occurred and when property was transferred between you. You said that the first property was yours. If that is the case, how can you divide the properties when your wife did not appear to have ownership rights over the first?

Customer: replied 2 years ago.

Hi Tony


 


Thanks for this. I do understand that it may not have been clear.


 


I owned the property prior to marriage. We then bought a second investment property jointly. On separation, we agreed that would I keep outright what was originally mine and she keep the other. Both have similar values and equity, so seemed fair (albeit I invested in the second property whereas she had invested nothing in the first).


 


 

Expert:  TonyTax replied 2 years ago.
Thanks. I want to make sure my answer is correct as the last thing you need is the tax office on your back for an incorrect declaration.

Was the first property that you now wish to sell ever put into joint names? If so, when was that exactly (month and year) was that before or after you married? If it was put into joint names, can I assume that your wife never lived in it and that it was let during the period that her name was on the deeds? When did you marry (month and year)? When did you separate (month and year)? When was the investment property transferred into your wife's name only (month and year)? If the first property was in joint names when was it put back into your name only (month and year)?
Customer: replied 2 years ago.

Hi Tony


 


Sorry again.


 


No - her name was never on the deeds and she never lived in it.


 


We separated feb 2013.


 


While both properties are in my name (she could never raise a mortgage) we agred that she would have one and I would have the other. However, no legal transfer has taken place as she can't raise a mortgage on the second property as she only makes a small self employed income.


 


It is confusing and messy.

Expert:  TonyTax replied 2 years ago.

Thanks.

My answer as far as the first property is concerned remains the same.

As far as the second property is concerned, it isn't in joint names which may cause a problem when you sign it over to your wife even though your claim is it was jointly owned and was in your name alone because of the mortgage situation. So long as your wife can show that she invested her own money in the second property with you, then you will only be treated as having disposed of a 50% share (or whatever proportion she contributed) to her for CGT purposes.

Transfers of assets between married couples who are living together are treated as tax neutral, ie no gain, no loss. The same applies in the tax year of separation. As the transfer of the second property is going to occur after the end of the tax year in which you separated, you will be treated as having sold your share to your wife for 50% of the open market value of the property and that may leave you with a CGT liability.

 

Take a look at the notes here. You should consult a solicitor who has tax knowledge to see if there is a way to mitigate the potential CGT liability on the transfer from you to your wife of your share of the second property. It can be done with what was the family home but the second property wasn't the family home where you all lived at some point.

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