We're looking at selling my wife's flat that she had prior to our marriage. We've both been somewhat surprised by the valuation and so are now probably liable for CGT. However, I can't quite get my head around it, so before I start looking for an accountant I figured I'd ask here.
- Wife bought property in Aug 2005 for £120k.
- In Feb 2013 I was added to the deeds as a condition of the mortgage when we bought our marital home.
- Flat valued today at £165k.
Presumably me being added to the deeds in 2013 was classed as a 'gift'. Do we need to work out the market rate at this point in time for my half of the CGT?
Am I better just gifting my half back to her? (I'm a higher rate tax payer, she's on part time wage whilst looking after our children).
I'm ok with the calculations if she owns it outright from 2005 to 2017 but its the transfer to shared ownership which is giving me a headache.
Thanks
I'm not an accountant but was she living in it for any part of 2005 to 2017? If it was classed as primary residence then it might be exempt for that period of time.
Yes, lived there full time from 2005 to mid 2010, then for a period from mid 2011 to 2013.
[url= https://www.gov.uk/tax-relief-selling-home ]Have you taken this HMRC quiz?[/url]
You're [i]probably[/i] only liable for CGT on the time she didn't use it as a primary residence. Don't forget that you also have tax allowances e.g. ~£11.5k plus other items where you spent money on the house.
The CGT won't be as scary as you think, it's not like it's doubled in value.
https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/
Have you taken this HMRC quiz?
Yes, it tells me we're entitled to some private residence relief. Doesn't help with me being added to the deeds part way through ownership or me living there when I wasn't on the deeds.
I would sell it. Say nowt.
Put 20% of the "profit" in a Building Society. Wait a few years and see if anyone comes looking for it.
But that's just me.
With a combination of both your allowances plus the time it was lived in I suspect you might be ok and not need to pay anything. Best to get advice from an accountant though.
Likely your conveyancing solicitor will work the CGT calcs up for you anyway as part of a sale process.
Thanks ElShalimo - useful link and confirms I need to work out a value in 2013 when I was added to the deeds.
I would sell it. Say nowt.Put 20% of the "profit" in a Building Society. Wait a few years and see if anyone comes looking for it.
But that's just me.
Difficult when I have to complete Self Assessment tax forms every year.
Thank NZCol - so I could be worrying about nothing.
Were you married when you were put on the deeds?
Assuming you were, you inherited the base cost of the flat. If you weren't your wife (partner at the time) would effectively have disposed of her half and been liable to any tax at that point, your half would be valued at that point.
No expert on PPR though.
The "don't say anything" idea doesn't work. HMRC are far more clued up than at any point in the past (on this, fully accept generally they are under resourced and with less experts on the front line), and have built systems to analyse data that can identify this e.g. from land registry information and tracing backwards. And your fine will be 100% of the tax
All of this is on my understanding, I don't practice tax...I'd get a decent accountant to look at it.
Yes, married in 2012 so we were married when I was added to the deeds... means more tax for me then by the sounds of it.
Maybe I'll give them a ring.
She will get PPR relief for the time your wife lived in it and if it has been rented out you can also claim lettings relief.
It's better in both names as you both have a capital gains exemption of about £11.5k a year.
As there are quite a few dates involved as your gain will only accrue from the time it was gifted to you, you are better sitting down with a good chartered accountant as using all the above reliefs there maybe no gains to pay.
as your gain will only accrue from the time it was gifted to you
Sorry to be pedantic but this is wrong as per my previous post. The OP will effectively have the same base ("starting") cost as his wife had despite only taking ownership part way through.
https://www.gov.uk/capital-gains-tax/gifts
superstu is right. Also, though it is often better to share the gain thanks to the 11500 exemption, the OP is already a higher rate taxpayer while his wife is not. So would be best to ensure his share doesn't go over that much gain. it's just a case of doing the calcs carefully. Might be worth splitting the ownership other than 50/50. Given there is only 45k total increase and much of the time it was principal residence I'd be surprised if you couldn't avoid any liability.
Dont forget to knock off your purchase and sale costs from the profit. Also, any capital type improvements you have receipts for.
Cough cough but any chance of moving back into it for a while, then maybe you get a job too far away and you have to sell it?
Sorry. Hadn't seen you were married in 2012.
Difficult when I have to complete Self Assessment tax forms every year.
Have you tried getting out of this ???
I was REALLY suprised when I phoned HMRC and the result was that the guy found a way to take me off self assessment for 2015-2016 .. did it right then ... ran through questions etc. and I got sent a notification
He couldn't get me out of 2016-2017 but he did get my ID shifted so that next year I don't default.
The daft thing is my question was about interest... the self assessment wouldn't let me put in the pence....so my question was should I round it up to the nearest £1 (or not) ... as this is then entering deliberately inaccurate information on the form
From memory the total was something like £11.02 and I was offering to round it up to £12.00 ....
so 98p it was a significant percentage of my total bill above PAYE (though if I could be bothered I'm sure I could save £50 for 12 hours of my time investment)
That's an interesting one. You've left out a couple of crucial bits of info - what other properties do you own individually or together? There's no CGT to pay for periods where the flat was someone's 'only or main' residence (main residence can be nominated).
There's a lot of overlapping stuff there which makes it really odd - because of the spousal gift you get the base value from 2005. Do you benefit from periods when it was HER only/main residence but not yours? Or does your period of ownership start in 2013 (but with a profit based on the 2005 value.).
My thoughts are -
If it's the former - ie you get her OMR benefits then there 7 years of occupation (plus 18 months) so after relief the gain is 3.5/12 years x £22.5k - ie c£6500 which is less than your CGT allowance
If they latter and your 'ownership' is only 5 years then you get relief on about 2.5 years of it - gain after relief £11800. Still probably less than your annual CGT allowance once you take off sale costs.
If it's been let out there's up to 40k of lettings relief as well.
If the solicitors don't work it out HMRC can be helpful but looks very unlikely that that gain won't be covered by reliefs.
Have you tried getting out of this ???
No, as I have to do it to declare the rental income.
what other properties do you own individually or together?
We only own our marital home and the flat.
because of the spousal gift you get the base value from 2005. Do you benefit from periods when it was HER only/main residence but not yours? Or does your period of ownership start in 2013 (but with a profit based on the 2005 value.)
This is the only outstanding question for me now; that is whether I benefit from her PRR (or my own PRR when I lived there either side of our marriage but I wasn't on the deeds).
Thanks to the above help the PRR and Lettings relief mean that we should be under the CGT allowance. I'll give the helpline a call to clear the above up and we should be sorted.
Thanks all.
Wait a few years and see if anyone comes looking for it.
I thought the solicitors had to make declarations to HMRC on house sales? Could be wrong though ?
We only own our marital home and the flat.
And when did you buy the marital home? If you didn't own another property it was your 'Only' residence for the pre-marriage years whether you lived there or not (though still depends whether your period of ownership is deemed to start in 05 or 13
Cough cough but any chance of moving back into it for a while, then maybe you get a job too far away and you have to sell it?
But tax would still be liable for the period the property was rented out. Or are you thinking that by 'living' there for 'a while' the op would slip under the hmrc radar?
And when did you buy the marital home? If you didn't own another property it was your 'Only' residence for the pre-marriage years whether you lived there or not (though still depends whether your period of ownership is deemed to start in 05 or 13
Marital home bought in 2013.
To confuse matters further, I personally owned another flat until around Oct 2012.
No chance of moving back in. 1 bed flat with wife and 2 kids not worth the hassle....and we're also loving our main residence as we speak.
get divorced - wife (now ex) moves into flat, stays there for a few years, then sells her main residence.
For a real divorce, with the wife moving back into the flat that she had rented, I think she would still have a cgt problem, which seems funny as she wouldn't really have made a capital gain if she sold and then bought another property in the same area. And she'd already have paid tax on the rental income.
Marital home bought in 2013.To confuse matters further, I personally owned another flat until around Oct 2012.
Yep, that confuses it further - it can't have been your OMR pre-2013 because presumably the other flat you sold was.
I'd take a punt and say the gain is from the 20015 value and the relevant period of occupation (for you) is post 2012. Will be interested to know what the HMRC advise.
get divorced
If you both own properties when you enter a relationship getting married can be a pretty poor decision financially.
getting married can be a pretty poor decision financially.