Private residence relief and moving abroad

by **petergibbinson** on Sat Apr 04, 2009 6:51 pm

Not sure if this should be under property or overseas tax but here goes.
I left the UK in Jan 2007 to work in Dubai, my employer moved here.I rented my primary residence out on leaving the UK. My understanding is under the PRR rules because my employment and all my duties are carried out outside the UK my PRR exemtion remains even after the 3 year rule (where exemption applies for any reason) as long as I move back into the house when I return to the UK.
That is clear..few questions
1. What happens if I move back to the UK, sell this property but don't move back into it first?
2. What happens with jointly owned properties between husband and wife if the wife doesn't work whilst she is abroad with me?
3. And this is where it gets complicated..The property was solely owned in my name (I bought it 1999 before I was married and never got round to transferring it) I transferred half to my wife via my solicitor last month, as tenants in common (no SDLT as no mortgage) to reduce the tax bill for letting the property. How does this effect CGT if we sell it in years to come? I presume the 3 year rule applies regardless? For my wife does her 3 years start on the date of the transfer? or do the same rules that apply to me apply to her and it is exempt permanently? Or does her half become treated an investment property as when the transfer occured it was then a rental property and not her private residence?
4. What happens if my wife moves back to the UK to live in this property and I remain in Dubai for a year or 2? Are both our PRR exemptions treated seperately? It's her PRR if she is living in it by default, but can't be my PRR as well, as I would still be abroad?!
I'm sure I'm amking this more complicated than necessary but I would like to know if there is anything I should be aware of in terms of tax planning.

by **Peter D** on Sat Apr 04, 2009 9:03 pm

First reponse is read :
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm
Working away on UK business allows 4 yeras and abroad unlimited if you return to the property.
I you are now non resident by matter of fact or via P85 and you remein out of the UK, under the rules, for 5 complete FY's and you sell whilst out of the UK then there is no UK CGT and non in Dubai.
Your wife does not attract 3 yera PRR as she has not owned and lived in the property at the same time. An interspousal transfer will have allowed a second CG allowance but nothing else. This was not a good move as you have lost 1/2 your letting relief if the TinC was 50/50 ( you do not say) Letting Relief only applies to Qualified PRR which your wife is not. I suggest you discuss this with your solicitor as he has failed to detail the effects of your instructions. You now own 1/2 a house as PRR and your wife does not have this exemption or Letting relief, worth up to £40,000. Did you take formal advice or did you just instruct your solicitor. I you are Tin C then you need to address your wills as only with joint tenants does the property only automatically transfer to the surviving spouse. Regards Peter

by **Peter D** on Sat Apr 04, 2009 9:22 pm

My post could be mis-understood. Adding you wife as an owner does not change your entitlement to LR but your wife will not get any. However she will from the date of owning half the property have a potential CG liability as she now own 1/2 a rental property she has not lived in as an owner. If you both remain non resident there is not a problem if you sell whilst out of the UK but circumstances change. Has your solicitor actually in formed the LR yet. ?? Regards Peter

by **petergibbinson** on Sun Apr 05, 2009 7:59 am

I'm still a little confused..we got married in 2005. We both had primary residences before we got married..obviously you can only have one priavate residence, and my wife sold her house. So I owned the property from 1999 as my primary residence. It became my wife's primary residence (the marrital primary residence) The fact I was the only person on the deeds, and now it has changed to tenants in common 50:50 surely makes no difference? it's only a change form me owning 100% to us being 50:50...my wife's share has gone from 0% to 50% but it was originally her primary residence.
Obvious the confusion is we have done the transfer after renting the property out!
If my wife has to pay CGT I will just change the allocation percentage to 99:1 or 100:0 in my favour by a deed of trust (as it is tenants in common)
Would the tax man really see her 50% as an investment property when she lived in it as her primary residence from 2005 to 2007? Looks like I've got myself in a pickle!
Kind regards,
Peter

by **Peter D** on Sun Apr 05, 2009 9:12 am

If you had done an interspousal transfer whilst you both actually lived there then it would be her PPR. But as it is you have gifted her 50% of a rental property and yes you could go for 1% to retain the full CG allowance but minimise the gain. Yes this is how HMRC will deal with this matter if they pick up on it. Regards Peter

by **petergibbinson** on Sun Apr 05, 2009 9:51 am

Thats great..just one quick final query. If I change the ownership as tenant in common to 99% me 1% my wife (can I do 100% 0%?) then if I don't fill out a form 17 with the HMRC then rental income is treated as 50:50 is my understanding.
But when and if we come to sell the GCT is calculated as per the deed of trust i.e 99% liability to me (and as I qualify throughout for PRR I pay no CGT) and my wife pays CGT on 1% of the gain, pro-rata for the period it isn't her PPR (so if we move back in after 2 years and sell 8 years after that she is liable to CGT on 2/10 of the gain?) ..and is is this calculated from the initial purchase value in 1999 or the value at transfer in March 2009?

by **Peter D** on Sun Apr 05, 2009 10:00 am

Be aware that the interspousal transfer is on a no loss no gain basis so the base value of the gift is 50% of the purchase price. Any gain will have to be seperately reported to HMRC via the property pages of a SATR. Regards Peter

by **petergibbinson** on Sun Apr 05, 2009 12:36 pm

OK that makes sense.amd I presume my above logic re 99:1 % deed of trust and income at 50:50 but CGT calculated at the 99:1 ratio holds true?

by **Peter D** on Sun Apr 05, 2009 1:39 pm

If you have a Declaration of Trust declaring beneficial ownership of 1/99 then that is the proportioning used for the rental income. You can go 0% and inform HMRC who the income is going to so they send the appropriate SATR. If you come to sell the property you change the D of T to add you back in as a beneficial owner for a couple of months prior to the completion date. Regards Peter

by **petergibbinson** on Sun Apr 05, 2009 2:06 pm

we still seem at cross purposes!
I am going to change the tenants in common to be 99% me 1% my wife, via my solicitor.
IN1192 suggests that any cgt gain will be 99% to me (none as it's my PPR) 1% to my wife.
If I don't fill out form 17 the income in split 50:50 by default (as income is treated this way by the HMRC for jointly held assets unless a declaraion is made)

That seems clear from the HMRC website...but is there a risk they say..hang on! you've left the income 50:50 but you are claiming a 99:1 split of the gain!
If there is a risk of this I will just change back to my sole ownership.