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bigduckontax
bigduckontax, Accountant
Category: Tax
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I've had the same partner years but we are now

Customer Question

Hi,
I've had the same partner for 23 years but we are now separating. We have lived apart since 2011 (she has mental health problems) but have now decided to separate as a couple. We own the house I live in which is our principle place of residence but since 2011 when not in hospital she has been living at another property we own which was previously rented out. The obvious way forward would be to transfer my interest in her house to her and hers in this one to me. Question is as to the CGT implications. I think that there are none re this house but not so sure re the other one. It was bought on Mortgage for £56K with a deposit of £11K. That was in 2000. House is now mortgage free and worth £185K. As to income (which I think CGT rates are based on) both ex and myself live on small pensions (In my case approx. £12000 pa). Don't know exact details of hers though it will be less than that. She also receives some benefits as a result of mental health issues. If CGT is payable then what is the liability likely to be (ballpark). Thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer and happy to be able to assist you with your question. Transfers between unmarried partners count as disposals and the normal Capital Gains Tax (CGT) rules will apply. The transfer of your principle place of residence will not attract the tax as Private Residence Relief (PRR) will apply. The second home will be subject to CGT, but only for 50% as it is jointly owned. A ball park figure would be (185K - 56K) / 2 = 64.5K each. Take off the Annual Exempt Amount (AEA) of 11.1K = 53.5 taxable at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. Worst case scenario is a tax bill of a tad under 15K although I suggest that just over 12K would be a more realistic figure having regard to your incomes. Forget about the mortgage; that does not come into the CGT computation. I do hope that I have shed some light on your position for you.
Customer: replied 2 years ago.

Hi,

So there is no way of avoiding the payment of tax here? Problem is she wants to move so will lose £30K so not leaving enough for her to buy another house. She seems to think that as long as she has lived in the present house for 3 years then no CGT is payable?

Thanks,

Mark.

Expert:  bigduckontax replied 2 years ago.

Unfortunately Mark, no, as it is a second home. An election as to which home should be the recipient of PRR could have been made within 18 months of the axquisition of the second, but in its absence HMRC will base the decision on the facts. It is pretty clear that they will plump for the longer ownership period residence as the gain will be greater, thus favouring the Revenue.

Please be so kind as to rate me before you leave the Just Answer site.

Regards

Keith

Customer: replied 2 years ago.

Apologies for the delay. Thanks for that. Final point is whether she could give me her half interest claiming some sort of holdover of tax on the gift and then in an entirely separate transaction I help her buy a house? In that way the tax is deferred until I sell (which would suit me) I can let the house out and she can move as she wishes to. Meanwhile the revenue will not lose out because I will pay CGT on any eventual sale based on the value of her half share at date of her acquisition ie half of 56K plus my gain based on the same figure.

Thanks,

Mark.

Expert:  bigduckontax replied 2 years ago.

Mark; Benjamin Franklin once sagely observed that in life there are but two certainties, death and taxes. If she gives you half of a landed property then as mere partners that counts as a disposal for CGT purposes. You cannot employ Holdover Relief as these are not business assets and in any event the relief is generally confined to property let out as holiday lettings although the Gov UK advice in this area is rather woolly. If you give her money to buy a house then you escape tax providing you survive seven years. The gift would create a Potentially Exempt Transfer (PET) in your estate for Inheritance Tax (IHT) purposes. PETs run off over seven years at a taper and in the event of your demise within the time limit are added back to your estate and are the first to suffer IHT. In the event of your estate being insufficient to meet the IHT then the liability cascades down to the beneficiary for immediate payment. The classic defence against a PET is a reducing term life insurance policy.

Regards

Keith

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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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