CGT liabilities to buying family home whilst abroad

[prcoop]

Sorry if you've answered this before.

I'm currently living in Hong Kong for past 12 years and in process of buying my future long term family home in the UK. I wont be planning on moving back for maybe 3~5yrs though and am confused as to whether it will be deemed my private residence or an investment property as I would wish to rent it out in the meantime. If this is the case, could I buy it in my name and sell it to my wife at the time of our return.

Regards and thanks in advance.

Peter C

[Peter D]

That would not do anything for you and it would be deemed an inter spousal transfer anyway. You should consider buyinh it jointly and renting it out and declaring the rental profit as appropriate. When you come back to the UK and move in it will then be your PRR and attract CGT exemption form that point. However on disposal you will be able to claim PRR and letting relief for the period it was let which is limited to a max of £40,000 per owner. Read IR283 on the HMRC web site and post back if you have further questions. Regards Peter

[Incredulum]

I disagree 100% with Peter D.

Your proposed solution would be the perfect solution, i.e. buy it yourself and then transfer it to her upon your return.

If you transfer it to your W no more than six months before you move into it (ideally less than that to allow for "accidents"), then her acquisition date for PPR relief purposes would be the day she acquires it. NB, to satisfy s222(7) TCGA the transfer to her must be BEFORE you move in.

Peter D didn't understand this the last time it came up for discussion. And he's still spouting the same rubbish.

http://www.taxationweb.co.uk/forum/capital-gains-tax-inter-spouse-transfer-t29572.html

[maths]

Ah......this dreaded problem....yet again.

Good luck to prcoop if he tries to follow the discussion referred to by incredulum!!

Nevertheless, sticking at it may pay dividends and if nothing else illustrates how complex this area can be; the discussion also does contain some real gems.

Whilst I haven't got the heart to comment at this point in detail I agree that in principle it is tax efficient for say husband to buy now and transfer (sale or gift) to wife just prior to returning to live in house as PPR.

The object here is to avoid s222(7) from applying and thus by transferring H to W prior to living in the property causes its conditions to be breached ie W's period of ownership does not then commence at the date of original acquisition by H (although under s58 W's base cost for CGT is that of H).

Result: on future sale by W 100% PPR in principle arises.

My head hurts again.

[Incredulum]

Dreaded problem

Really? I think it's one of the most powerful planning ideas I've seen in ages! And extremely straightforward to operate.

[prcoop]

Thank you to all three of you for responding to my quandary.

I've been having a trawl though the HMRC website on the pages you've suggested and others but I'm not sure I'm any clearer.

what is clear if i lived in the property then moved away for a while before returning it wouldn't be an issue. but this doesn't apply.
what I think I'm correct in saying is if i bought and sold the property whilst living abroad I would not be subject to any CGT at all.
what is murkey, and a cause for discussion it seems is transferring the asset to my wife just prior to returning to the UK. If i did this would it be subject to the stamp duty again as if a change of ownership? would i then be able to add myself back onto the deeds at a later stage?

Peter D, could you explain the letting relief of GBP40k per owner? I could claim letting relief for up 80k? but what is this number, and relief from what? I envisage the house would rent for approx gbp2000 pm. how would this number be taken into account at time of disposal somewhere down the line?

Gentlemen, many thanks in advance.
Peter

[Incredulum]

SDLT would apply to the extent there is consideration. Consideration would include your wife taking on a mortgage. You might have trouble with the mortgage company if you have one and she doesn't work.

You might therefore (if this applies) want her to buy it whilst you are non res - a BTL being relatively easy to acquire - and then she transfer it to you shortly before you move in, you acquiring a resi mortgage. This would achieve the same as my earlier proposal.

Yes, you could subsequently transfer it into joint ownership, but you would want to wait a suitable length of time; I always feel a couple of years or more is polite.

Letting relief

When you sell it, calculate the gain, G (proceeds less cost (or 1982 market value), less costs, less enhancements).

Then add up
A. The number of months you owned it for
B. The number of months you lived in it, plus any of the final 36 months in which you did not live in it.
C. The number of months you actually rented it. But exclude any rental in the final 36 months, and exclude voids.

Then multiply G*[(A-B)/A] = T. That fraction is the taxable element of the gain.

Then deduct from T the lettings relief which is the lowest of:
T
40,000
G*C/A

That is your taxable gain, against which you can set your annual allowance and any capital losses you may have. Tax on that payable at 18%.
If the property is jointly owned, you get two lots of 40,000.

[Incredulum]

The £2,000 is irrelevant for calculating CGT.

You will have to register with the non-resident landlord scheme.

[Peter D]

TCGA92/S222 (7) (a) & (b) is quite specific and was put in place to provide the no gain/no loss inter-spousal transfer between resident married, and later, civil partners and to protect the private residence upon death of one of the spouses. It was not intended, nor do I believe applicable, as an escape tunnel to write off a potential capital gain on future disposal. You appear to be the only one holding this view and wonder if you have submitted any such claims to HMRC on disposal that have been granted. Feel free to identify where HMRC open the door to miss out on a chunk of GCT liability. Regards Peter

[Incredulum]

It was not intended, as an escape tunnel to write off a potential capital gain on future disposal

How do you know? Please point us to the Hansard reference to this point. In any event, the courts are not mad keen on applying purposive construction to tax cases.

nor do I believe applicable, as an escape tunnel to write off a potential capital gain on future disposal

What you belive is irrelevant. I - and others - can read the legislation. The legislation is very mechanistic indeed. It has to be. It is also very clear. It is based on the 23rd word of s222 (7) (a) "is".

And you are very clear that my reading of the legislation is absolutely correct when the situation is the other way round - i.e. H transfers property to W when it is no longer their PPR.

To argue your point successfully you need to point out how the legislation differentiates between the two scenarios. It doesn't.

It would be wholly inequitable for HMRC to use the legislation to deny PPR to a W who is a recipient of the property after they move out, yet when the transfer is prior to moving in, to require the PPR rules to apply to the pre-ownership period.

Sorry, I have no practical experience of the application of this point. However I would be happy to say that HMRC would never litigate the point as they would lose - which would set the precedent.