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bigduckontax, Accountant
Category: Tax
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Sam, My parents jointly bought a property (flat) under

Customer Question

Hi Sam,
My parents jointly bought a property (flat) under the RTB scheme in 1996 for a discounted price as they were secure tenants since 1988. They bought a second property (family home) in 1997 and moved out. The property (flat) was transferred onto my mother’s name in 2006. They divorced in 2012 and my father kept the family home and my mother kept the flat. My mother tried to move into the flat after their divorce, but due to a difficult tenant she couldn’t occupy. She later sold the flat at the end of 2013. Is she subject to CGT, if so for what period?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question. The news I have to impart is, I regret, somewhat gloomy.

Yes she is, for the gain made between her acquisition and the sale. Divorce on Line Blog gives a very good summary of what can happen in divorce situations although it is not relevant in this case. You can read it at your leisure here:

However, here is the essential gist:

'While you are married you can transfer property to your spouse without any capital gains tax being paid, as long as you have lived together for at least part of the tax year in which the transfer occurred.

The benefit of this rule is not lost upon divorce but at the end of the tax year in which you separated. Should you separate during the tax year, then any transfer of property made during that tax year is treated as though you had not separated.'

Unfortunately your mother was not able to claim Private Residence Relief as she never lived there. However she is deemed to have occupied it for the last 18 months of ownership irrespective of where she lived.

She will be liable for Capital Gains Tax (CGT) on the gain made between a 2006 valuation and the net selling price. Unfortunately, as your mother never occupied the premises she is not entitled to Lettings Relief either, a pity as this can be up to 40K. However as the last 18 months do not count [see above] so the following formula applies;

Gain x total ownership period in months less 18 / total ownership period in months

a tad over 81%.

CGT is levied at 18% or 28% or a combination of the two rates depending on her income including the gain in the year of disposal. She has an Annual Exmpt Amount of 11.1K to offset this gain.

I do hope that I have been able to shed some light on your mother's situation.

Customer: replied 3 years ago.

Keith, thank you for your response.

Further - My mother will be liable for Capital Gains Tax (CGT) on the gain made between a 2006 valuation and the net selling price and not on gain made between 1996 and the net selling price in Dec 2013? My mother did occupy from June - Dec 2013. Could she still receive Lettings Relief?

Expert:  bigduckontax replied 3 years ago.

Yes, her occupation opens the door to Lettings Relief (LR). Lettings Relief replaces the Annual Exempt Amount, the seller does not get the benefit of both reliefs.

There is a possibility thet she could be laible for additional CGT for the period 1996 to 2006, but as this was jointly owned then only half the gain would fall to her for the interim period. In that case the 1996 acqusition price would come into the equation. Gains are deemed to rise evenly with time. We all know that house prices do not, but that is how it works. Of course this alters the ratio as does her occupation and knocks it up to some 93% of the gain chargeable. However, the joint ownership with her husband does throw a spanner in the works and without quantative figures the calculation is all but impossible; it will reduce the percentage a little though.