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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15917
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I currently rent out a property jointly with my husband and

Customer Question

I currently rent out a property jointly with my husband and have done for 3 years. I am possibly going to move into the property myself with the children, if i sell the property in the future will I be liable to pay capital gains tax.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you confirm whether you and your husband are separating please?
Customer: replied 2 years ago.

Yes we are separating

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 2 years ago.

ok

Expert:  TonyTax replied 2 years ago.
Thanks.

There is a fair amount to get through so please bear with me.
Customer: replied 2 years ago.

Ok

Expert:  TonyTax replied 2 years ago.
Hi again.

Take a look at the HMRC helpsheets HS281 and HS283 which contain relevant information.

A married couple can only have one main residence for Capital Gains Tax purposes between them when they are living together. Separation changes that as you will read on page 3 of HS281.

If the property which you currently let becomes your main home, you will get exemption from CGT for that part of your share of the gain covered by the period that you live in it and for a maximum of the last 18 months of ownership if you are not living in it, excluding overlaps.

As the property will have been both your main home and let, you will also be entitled to a further deduction from the gain called letting relief which will be the lesser of:

1 £40,000,

2 your share of the gain for the period the property was your main home plus the gain for a maximum of the last 18 months of ownership as described above and

3 that part of the gain covered by the period you let the property less the gain for any part of that period covered by the last 18 months of ownership.

Do, for example, if you live in the property for 3 years and then sell it, you will get main residence relief for 50% of your share of the gain plus letting relief. Any gain left after those deduction will be taxable subject to the annual CGT exemption which is currently £11,000.

For disposals of property which have been the owner's main home at some point which occurred by 5 April 2014, a maximum of the last 36 months of ownership was given as tax free. For disposals after 5 April 2014, it is a maximum of the last 18 months of ownership.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Can I just clarify the 18 month rule, if I live in the property for 6 months then sell, I would have relief for the 12 months that it was rented and also the 6 months that I have lived in it? What about cgt for my husband if he does not live in the property and it becomes mine?

Expert:  TonyTax replied 2 years ago.
If you lived in it for six months and then sold it, provided the tax office accepted the property was your main residence for that period, you would get a total of 18 months (6 + 12) of your share of the gain tax free plus letting relief, though the letting period gain would be reduced by 12 months for the purposes of the calculation of figure 3 in my previous post.

If your husband gave you his share of the property by the end of the tax year during which you separate, he will escape CGT as transfers of assets between married couples who are living together are treated on a "no gain, no loss" basis. A married couple are treated as living together until the end of the tax year in which they separate. If it was transferred to you after the end of the tax in which you separate, then your husband would be deemed to have sold you his share at the open market value and may have CGT to pay.
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Customer: replied 2 years ago.

Is the capital gain spread linearly over the period of ownership or could it be deemed to be when the gain occurred in the property market?

Expert:  TonyTax replied 2 years ago.
The gain is treated as having accrued evenly over the entire period of ownership. See page 4 of HS283 for confirmation.

If your husband's share of the property is given to you by the end of the tax year in which you separate then your cost for CGT purposes will be the original purchase price and acquisition costs of the property.

If your husband's share of the property is given to you after the end of the tax year in which you separate then your cost for CGT purposes will be the sum of half the original purchase price and acquisition costs of the property and half the value of the property at the time your husband gives you his half.

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