Selling wife's house - lost in capital gains tax
Discussion
Hello,
I am a 'regular' but using a new login for privacy (friends on the site).
When my wife and I married we both owned our separate homes outright. We never put each other on the respective deeds or transferred ownership. We moved into my house and rented out hers. We're now selling her house and are a bit confused about our CGT liability. Hoping someone could point me in the right direction about what could/should be done.
Say after deducting the costs of sale and Private Residence Relief there will be a gain of approx £50,000. I thought that as we were married we could both apply our CGT allowance (£12,300 each) , bringing the taxable gain down to £25,400. We'd then split the gain 50/50 to take advantage of lower tax bands. I didn't think it mattered the house was solely in my wife's name.
A friend has advised that we can't do this, and as the house is in my wife's name we can only apply her CGT allowance. Meaning the taxable gain is £37,700 and we can't put any of the gain in my lower tax band. But could transfer half the house to my name (no CGT or stamp duty due as it's a gift), and then use the first method outlined above? I wasn't sure if this would mess up the private residence relief calcs?
TLDR version:
Selling a house that is solely in my wife's name. can we...
Preferred option: Lump my CGT allowance in with my wife's, even though my name isn't on the asset/deeds?
Option two: Transfer half the house to me, then sell and benefit from my CGT allowance, without buggering up the private residence relief?
Thanks!
I am a 'regular' but using a new login for privacy (friends on the site).
When my wife and I married we both owned our separate homes outright. We never put each other on the respective deeds or transferred ownership. We moved into my house and rented out hers. We're now selling her house and are a bit confused about our CGT liability. Hoping someone could point me in the right direction about what could/should be done.
Say after deducting the costs of sale and Private Residence Relief there will be a gain of approx £50,000. I thought that as we were married we could both apply our CGT allowance (£12,300 each) , bringing the taxable gain down to £25,400. We'd then split the gain 50/50 to take advantage of lower tax bands. I didn't think it mattered the house was solely in my wife's name.
A friend has advised that we can't do this, and as the house is in my wife's name we can only apply her CGT allowance. Meaning the taxable gain is £37,700 and we can't put any of the gain in my lower tax band. But could transfer half the house to my name (no CGT or stamp duty due as it's a gift), and then use the first method outlined above? I wasn't sure if this would mess up the private residence relief calcs?
TLDR version:
Selling a house that is solely in my wife's name. can we...
Preferred option: Lump my CGT allowance in with my wife's, even though my name isn't on the asset/deeds?
Option two: Transfer half the house to me, then sell and benefit from my CGT allowance, without buggering up the private residence relief?
Thanks!
Badda said:
Pretty sure you cannot use your allowance. Even if you transferred the property half to you, the calculation would be back dated and so irrelevant if selling now.
Damn.Eric Mc said:
How long is it since your wife’s house stopped being her main residence?
How long was it her main residence?
We lived there together for 10 years, it's been rented for 3. The details are (if it matters):How long was it her main residence?
13 years ago - partner buys property. We move in.
3.5 years ago - I buy my property
3 years ago - we get hitched and move in to my property. We start renting out hers.
present day - plan to sell her property.
I asked this same question 2/3 weeks ago :-) Due a search for my userid and see the answers.
Im in the same situation as you / your wife. You can only deduct her £12.5K as her name is on the deeds alone.
PRR is easy.
Workout the total number of months she owned the house
Then work out the number of months she lived there, and then work out the number of months it was rented
You get +9 months relief too, so add 9 months to `lived` number and deduct `9` from months rented
Work out the percentage of both those times to the total number of months owned. Lets say 80 % owned 20% rented
Take 80% away from the gain as PRR.
Remember you can deduct all original purchasing costs, solicitor fees etc. You can also deduct all current sellling fees / costs
You can also deduct all captial expendatures. Conservatories, extensions, stuff you did to `grow` the property. This doesnt mean new windows, new roof, etc as all those things were there. To be honest these cap costs dont really influence much overall, its the % owned / rented.
So you now have your gain. Now its either 18% or 28% of the remaining gain (depending on her earnings for this year) that you pay as CGT.
Once you've worked it out, you then have 31 days post house sale to pay.
SBK
Im in the same situation as you / your wife. You can only deduct her £12.5K as her name is on the deeds alone.
PRR is easy.
Workout the total number of months she owned the house
Then work out the number of months she lived there, and then work out the number of months it was rented
You get +9 months relief too, so add 9 months to `lived` number and deduct `9` from months rented
Work out the percentage of both those times to the total number of months owned. Lets say 80 % owned 20% rented
Take 80% away from the gain as PRR.
Remember you can deduct all original purchasing costs, solicitor fees etc. You can also deduct all current sellling fees / costs
You can also deduct all captial expendatures. Conservatories, extensions, stuff you did to `grow` the property. This doesnt mean new windows, new roof, etc as all those things were there. To be honest these cap costs dont really influence much overall, its the % owned / rented.
So you now have your gain. Now its either 18% or 28% of the remaining gain (depending on her earnings for this year) that you pay as CGT.
Once you've worked it out, you then have 31 days post house sale to pay.
SBK
Edited by sbk1972 on Sunday 6th September 19:29
Confused Seller said:
We lived there together for 10 years, it's been rented for 3. The details are (if it matters):
13 years ago - partner buys property. We move in.
3.5 years ago - I buy my property
3 years ago - we get hitched and move in to my property. We start renting out hers.
present day - plan to sell her property.
So, for 13 out of 16 years, the property was your wife's main residence. That means, expressed as a fraction, 13/16 of the gain will not be taxable. In fact, a further 9 months is allowed on top of the 13 years so the fraction of the gain that will fall outside the chargeable gain will be a bit more than 13/16..13 years ago - partner buys property. We move in.
3.5 years ago - I buy my property
3 years ago - we get hitched and move in to my property. We start renting out hers.
present day - plan to sell her property.
Calculate the gain (selling price minus ancillary costs pf sale less purchase price plus ancillary costs of purchase plus any enhancement costs).
This will give you the chargeable gain. Then deduct your wife's annual CGT allowance. What's left over will be subject to Capital Gains Tax at either 18% or 28% or a combination of both depending on her income from other sources in the tax year of disposal.
Thanks for the help.
I think we're okay with the PRR calculation, although digging through the recent changes was a right pain. We were more wondering if we could apply both of our CGT allowances (even though the house is in her name only) which would of knocked £4k off the tax bill. Unfortunately I don't think we can and it all has to go through in her name.
There is one other question I can't find the answer to... and that is if we are allowed to include Stamp Duty in the purchase cost when working out our net gain. Is that wishful thinking!?
I think we're okay with the PRR calculation, although digging through the recent changes was a right pain. We were more wondering if we could apply both of our CGT allowances (even though the house is in her name only) which would of knocked £4k off the tax bill. Unfortunately I don't think we can and it all has to go through in her name.
There is one other question I can't find the answer to... and that is if we are allowed to include Stamp Duty in the purchase cost when working out our net gain. Is that wishful thinking!?
No, it is not wishful thinking. The cost of the property used when calculating CGT is -
i) the agreed purchase price
ii) legal fees and any other 3rd party fees incurred at the time of purchase
iii) stamp duty charged at the time of purchase
All of that information should be available on the original solicitor's completion statement.
Example -
Agreed purchase cost - £200,000
Legal Fees etc - £3,000
Stamp Duty - £4,000
The cost of the property for CGT purposes is £207,000.
HMRC expects ordinary folk to know all this stuff. It is a criminal offence to submit incorrect tax returns - including on-line returns.
i) the agreed purchase price
ii) legal fees and any other 3rd party fees incurred at the time of purchase
iii) stamp duty charged at the time of purchase
All of that information should be available on the original solicitor's completion statement.
Example -
Agreed purchase cost - £200,000
Legal Fees etc - £3,000
Stamp Duty - £4,000
The cost of the property for CGT purposes is £207,000.
HMRC expects ordinary folk to know all this stuff. It is a criminal offence to submit incorrect tax returns - including on-line returns.
Edited by Eric Mc on Monday 7th September 09:55
Eric Mc said:
No, it is not wishful thinking. The cost of the property used when calculating CGT is -
i) the agreed purchase price
ii) legal fees and any other 3rd party fees incurred at the time of purchase
iii) stamp duty charged at the time of purchase
All of that information should be available on the original solicitor's completion statement.
Example -
Agreed purchase cost - £200,000
Legal Fees etc - £3,000
Stamp Duty - £4,000
The cost of the property for CGT purposes is £207,000.
HMRC expects ordinary folk to know all this stuff. It is a criminal offence to submit incorrect tax returns - including on-line returns.
Thanks Eric - that's really helpful.i) the agreed purchase price
ii) legal fees and any other 3rd party fees incurred at the time of purchase
iii) stamp duty charged at the time of purchase
All of that information should be available on the original solicitor's completion statement.
Example -
Agreed purchase cost - £200,000
Legal Fees etc - £3,000
Stamp Duty - £4,000
The cost of the property for CGT purposes is £207,000.
HMRC expects ordinary folk to know all this stuff. It is a criminal offence to submit incorrect tax returns - including on-line returns.
Edited by Eric Mc on Monday 7th September 09:55
Yes it amazes me how bad some of the information and examples HMRC put out are. This is what it says about costs:
I've spent hours on hold to them over the past week ("We have long waiting times due to Covid blah blah blah") to ask some questions about what's allowed. I think I'll put all the costs I can think of on and they can always come knocking if they disagree!
Confused Seller said:
Badda said:
Pretty sure you cannot use your allowance. Even if you transferred the property half to you, the calculation would be back dated and so irrelevant if selling now.
Damn.Eric Mc said:
How long is it since your wife’s house stopped being her main residence?
How long was it her main residence?
We lived there together for 10 years, it's been rented for 3. The details are (if it matters):How long was it her main residence?
13 years ago - partner buys property. We move in.
3.5 years ago - I buy my property
3 years ago - we get hitched and move in to my property. We start renting out hers.
present day - plan to sell her property.
TX.
Confused Seller said:
Thanks Eric - that's really helpful.
Yes it amazes me how bad some of the information and examples HMRC put out are. This is what it says about costs:
I've spent hours on hold to them over the past week ("We have long waiting times due to Covid blah blah blah") to ask some questions about what's allowed. I think I'll put all the costs I can think of on and they can always come knocking if they disagree!
I expect HMRC assumes that people will somehow know that Stamp Duty is part of the cost of the property - so make no mention of it in their on-line "help".Yes it amazes me how bad some of the information and examples HMRC put out are. This is what it says about costs:
I've spent hours on hold to them over the past week ("We have long waiting times due to Covid blah blah blah") to ask some questions about what's allowed. I think I'll put all the costs I can think of on and they can always come knocking if they disagree!
And a legal point I will also make, if you make a mistake on a return because you thought you were following HMRC advice from their website YOU will be deemed to be wrong. HMRC will not stand by the information they put on their website. The only documentation that a taxpayer can actually rely on in law is the original tax legislation - if you can actually find it, find the part that is relative to what you are trying to do and interpret it correctly.
Eric Mc said:
So, for 13 out of 16 years, the property was your wife's main residence. That means, expressed as a fraction, 13/16 of the gain will not be taxable. In fact, a further 9 months is allowed on top of the 13 years so the fraction of the gain that will fall outside the chargeable gain will be a bit more than 13/16..
Calculate the gain (selling price minus ancillary costs pf sale less purchase price plus ancillary costs of purchase plus any enhancement costs).
This will give you the chargeable gain. Then deduct your wife's annual CGT allowance. What's left over will be subject to Capital Gains Tax at either 18% or 28% or a combination of both depending on her income from other sources in the tax year of disposal.
Isn’t that 13 years of ownership? 10 years as main residence, plus 18 months of PRR gives 11.5 years of the 13 as relief?Calculate the gain (selling price minus ancillary costs pf sale less purchase price plus ancillary costs of purchase plus any enhancement costs).
This will give you the chargeable gain. Then deduct your wife's annual CGT allowance. What's left over will be subject to Capital Gains Tax at either 18% or 28% or a combination of both depending on her income from other sources in the tax year of disposal.
Is the OP sure about the numbers in the opening post? £50k gain after this PRR implies around a £430k gain? Some rough purchase and sale prices would be helpful in giving an estimate of the gain you should be seeing.
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