Two homes, Principal Private Residences & Capital Gains tax?

[Adlopa]

Has anyone had any experience with Principal Private Residence rules and Capital Gains Tax..?

I got married earlier this year, and both my wife and I own our respective properties on opposite sides of town. We didn’t live together before we got married and still don’t (for various reasons), so continue to maintain two wholly separate households.

However, married couples with two (or more) properties need to nominate a Principal Private Residence that then benefits from Private Residence Relief when sold. The ‘other’ property then becomes liable for CGT when sold.

This seems rather arbitrary in our case, since we don’t have a single residence and never will until we both sell up in a year or two to buy a place together outside London.

So despite us both ticking all the boxes for Private Residence Relief, it looks like PRR doesn’t apply from the moment you’re married.

However, the Gov.uk advice here is vague for married couples who live apart in their own homes, and soon becomes incomprehensible once you read it in detail.

For instance, if we nominate my wife’s house as the PPR, can we then change it to my house later, since I’ve been living in the non-PPR permanently in that time, but my wife hasn’t..?

My accountant has little to add here (“Them’s the rules”) and I’ve yet to talk to HMRC, so I was wondering if anyone else had navigated a similar situation..?

[Darren at Fox-Bartfield]

PPR

Bit difficult without knowing the full details and reasons for living apart when you've only just got married. Have come across instances where couples separate and each have their own address for justifiable reasons but this seems like different circumstances.

The "norm" doesn't seem to apply in this case and suspect need further details that may not be good to share on a public forum! In theory, yes one property is nominated by as the PPR, however there are other reliefs available such as if one of you had moved out and let the empty property. So there are certain circumstances but would need to go into the detail.

[Mordac]

It does sound like a good reason not to have got married in the first place, but that doesn't help you now. You know the figures, so only you know what's at stake, but if both properties are in London, (as you alluded) that could be a large chunk of cash flying out the door when one property is sold.
It doesn't sound like your accountant is going out of his way to be helpful on this, so get some decent advice. Things may have changed since I was in a similar position, but you might find it a better option to rent out the less valuable property, and claim the PRR on the more valuable one.

[Maslins]

If you sell both properties within a year or so of getting married, will it matter?

Unsure whether you still get the additional tax free bit after PPR claim where you lose PPR due to getting married...but realistically is there much tax at stake if most of the period of ownership will be tax free anyway? Gain would be time apportioned over total period of ownership surely.

[Adlopa]

Aye, all that 'love and commitment' stuff aside, it seems like we should have sought financial advice before tying the knot. Act in haste, I guess...

The reason for the current arrangement is a combination of neither property being big enough for two (i.e 2x 40-odd years of accumulated stuff), plus neither of us is in a position work-wise to sell up and move far away just yet. Plus there doesn't seem to be much hurry for a temporary set-up —*we're both old enough and sensible enough to wait until we can do things properly.

Hypothetically speaking, I wonder if it would be worth risking not declaring the capital gain when we sell. Then, if HMRC take an interest, we have ample proof that the non-PPR was actually the main residence of the seller, since 'they've' continued to live there for the better part of a decade. Might need to be an MP to get away with that, though.

Maybe a divorce will be simpler...

[Adlopa]

If you sell both properties within a year or so of getting married, will it matter?

Unsure whether you still get the additional tax free bit after PPR claim where you lose PPR due to getting married...but realistically is there much tax at stake if most of the period of ownership will be tax free anyway? Gain would be time apportioned over total period of ownership surely.

The problem is making sense of advice like this:

"If you nominate a property as your main home you qualify for relief for most of the time you live away. You must have lived in the home as your only or main residence at some point while you owned it."

If we nominate my wife's property as our main home and later sell mine, what happens? I will have never lived there and I don't technically own it —*although I suppose it's legally half mine, regardless of the name on the deeds (and vice versa).

[Darren at Fox-Bartfield]

PPR

If you nominate your wife's property as the PPR, then sell within 18 months there's no chargeable gain in any case.

You said were looking to sell in a year in any event so should be ok. If it's going to be longer then perhaps worth getting a couple of valuations on the properties in the meantime just in case so you have their current values. These can then be used to calculate any gain further down the track should they be required.

[Mordac]

Aye, all that 'love and commitment' stuff aside, it seems like we should have sought financial advice before tying the knot. Act in haste, I guess...

The reason for the current arrangement is a combination of neither property being big enough for two (i.e 2x 40-odd years of accumulated stuff), plus neither of us is in a position work-wise to sell up and move far away just yet. Plus there doesn't seem to be much hurry for a temporary set-up —*we're both old enough and sensible enough to wait until we can do things properly.

Hypothetically speaking, I wonder if it would be worth risking not declaring the capital gain when we sell. Then, if HMRC take an interest, we have ample proof that the non-PPR was actually the main residence of the seller, since 'they've' continued to live there for the better part of a decade. Might need to be an MP to get away with that, though.

Maybe a divorce will be simpler...

1: Hector will take a dim view, and you don't want the full rubber glove treatment, do you now?
2: Divorce may be an option of convenience, but "legal separation" might be easier. Don't know where that stands legally or ultimately financially, but if you already don't live together, it would be pretty hard to prove you are NOT separated.

[Adlopa]

If you nominate your wife's property as the PPR, then sell within 18 months there's no chargeable gain in any case.

Yes, but how to interpret that? Who sells my wife's property, who gets the money and who fills in the relevant parts of the tax return? The property is in her name and she's lived in it for longer than 18 months...

Now we're married, I technically own half her property, so if 'we' sell within 18 months of marriage, does that mean I 'get' half the money and my half is CGT exempt – as is hers cos it's the PPR where she's always lived? And then reverse the situation when mine is sold at the same time..?

[Darren at Fox-Bartfield]

PPR

Ok, so if you nominate your wife's property and sell hers within the 18 months, the legal documents are in the name of your wife so she signs the paperwork. Bearing in mind transfers between husband and wife are exempt from CGT, doesn't matter if the cash ended up in a joint account, sole account, etc that's more of a personal issue rather than a tax issue.

If sold within 18 months, no gain on either of the properties so nothing to declare on the self assessments.

If after 18 months and wife's property is the PPR for you both then no CGT on your wife's property. If however you sell your own property after this period then there could be a gain on yours. To work out the gain, would need a valuation on the property at the time it lost its PPR status. The gain can then be calculated using the selling price and adjusting for any CGT allowances.

If you sell them both after 18 months, then the gain would be calculated only on the property that's not the PPR. Hence the suggestion for a valuation so would have a cost from which a gain can be calculated.

Just a thought but again down to your plans/circumstances, may be worth incurring the fees to transfer into joint names so that on sale you can utilise both CGT annual allowances. Depends on the cost of course, stamp duty, etc as may not be worthwhile depending on the property valuations.