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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15709
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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my girlfriend has her own flat where she lives under her name. we

Customer Question

my girlfriend has her own flat where she lives under her name.

we purchased another property (house) 9 months ago in both our names, did it up, and are now selling with an overall profit of £150K

I shouldn't have to pay any CGT, as this is the only property I have.

after we sell this house, how do we avoid paying capital gain on her share of the profits?

thanks
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

What was your intention when you bought the property? Did you live in it during the refurbishment?
Customer: replied 2 years ago.

I lived in it yes. but she stayed at her flat.


 


I have all the bills in my name and have been paying council tax


 


the deed has both my and her name on it

Expert:  TonyTax replied 2 years ago.
Thanks.

What I need to know is if you bought the property with a view to doing it up and selling it for a quick profit or that you both intended to live there but the rise in property prices during the last year has persuaded you to sell it. What was the exact nature of the work you did on it?
Customer: replied 2 years ago.

we were both going to live there, then she was going to sell her flat.


 


I moved in right away but she didn't follow.


 


we did a lot of work on the place.


 


we later decided to sell it, and I am going to move in with her after the sale

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer. There is a fair amount for me to get through so please bear with me.
Expert:  TonyTax replied 2 years ago.

Hi again.

If it was your intention when you bought the property to make a profit, HMRC could tax you on it notwithstanding the fact that you lived in it while you did the work on it. Not only that, but given the short period of ownership, HMRC could say that you have undertaken a property refurbishment and tax you as if you have been trading as a property developer. That would mean you and your partner would pay income tax and national insurance contributions on your profit instead of CGT.

CGT POSITION IF NO TRADING CLAIM MADE BY HMRC

If you sell the property, your share of any gain will be exempt as you will have lived in the property during your ownership of it. If your partner never lives there, then her share of any gain will be chargeable to CGT less an exemption for the first £11,000. If she made an election for the property to be treated as her main home within two years of acquiring a share in it (see here)and she spends some time there, she could avoid CGT on her share of the gain. There is some dispute about when the two year period begins as you can read here. However, in the case referred to, the second property was let as soon as it was bought so it was not available to be occupied by the owner so he did not need to make the election until he had a choice of homes to live in. That is clearly not the case as far as your partner is concerned.

My worry is that if your partner makes an election for the new property to be treated as her main home for CGT purposes from the date it was bought and then you sell it very quickly, in theory your partner's gain will be protected (exposing part of any gain on her current home) but HMRC may attack it on the basis that the exercise was carried out just to avoid tax. Although some argue that the point of the election is to help people top pay less tax, HMRC do attack such cases. I would say that you should spend at least a year living together in the property before you sell it to avoid unwanted attention from HMRC and even then there are no guarantees. However, such a move (to live in it for another year) should help you avoid being taxed as a property developer.

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

Customer: replied 2 years ago.

each or our profits before expences is 105k



can we offset all of the £60k expences on her side to reduce the taxable profit for her?



thanks

Expert:  TonyTax replied 2 years ago.
I'm afraid you cannot allocate development costs in the way you describe for Capital Gains Tax purposes.

If the profit was disclosed to HMRC as a partnership business venture, there is flexibility on the division of profit. However, that would render all your share of any profit taxable whereas your intention at the moment would appear to be claim main residence exemption for your share of the gain.

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