I own a house which I purchased for my Daughter to live in at University and to our surprise it has increased in value from 25k to 125k over 3 years. The house is jointly owned by my wife and I. We are now thinking of selling it giving us a capital gain of around 50k each less the allowable expenses etc. My question is can we both take a year off from work, earning no salary, and add our income tax allowance as well as the Capital Gains Tax allowance to reduce the tax paid on the 50k? Do we have to pay National Insurance? Thanks for your help. Richard
Cor! You have a sideline as a lay preacher in some church, and are authorised to marry people?
But they can hardly dispose of the house in dribs and drabs, could they? E.g. realise half the gain in one tax year and the other in the next, thereby perhaps escaping higher rate tax altogether? Are there not some "series of transactions" rules which, if the sales were to the same buyer, would cause them to be treated as a single transaction? This is the case, I gather, for stamp duty (so you can't sell a £100k house, on which £1k stamp duty would be due, as two tranches of £50k, on which no stamp duty is due), but was wondering whether there's a similar rule for CGT.
Perhaps they could gift half the house to their daughter, thus reducing their gain to 25k each. Then, the following year, the three of them could jointly sell to a "real" buyer, and the parents would then realise the other part of their gain, and the daughter's gain would be tax free if she's still living there.
Others have already pointed out that you can't add unused personal allowance (£4745) to your CGT allowance (£8200), but one might think the 10% bands could be put to good use (but -- see below -- in reality they cannot).
There is no NI on capital gains, but if you want the "Lotus Eater" years to count as qualifying years towards your state pension, you will need to make voluntary (Class 3) NI contributions of £7.15 a week if you reduce your earned income below the LEL of £79 a week.
This taking a year out idea is all very well if you're thinking of easing yourself into retirement anyway, but from the point of view of saving money it's actually a stupid idea. Why? Read on.
Suppose your income is such that you are not into the higher rate tax bracket. Suppose you're £10k below the higher rate threshold, and suppose that your taxable gain after expenses, taper, and allowance, is £40k. That means £10k of your gain will be taxed at 20% and £30k at 40%. If you could reduce your income by £10k, this would mean £10k more of your gain would be taxed at 20% instead of 40%, saving £2000 off your CGT bill.
But don't forget, that you're still losing the net income corresponding to the £10k by which you reduced your gross earned income. The £10k gross were worth £6700 net, and in order to save £2000 CGT you're actually losing those £6700, and as a result you're £4700 out of pocket.
I dare say your celebrant's fee won't be much to write home about, but there are fringe benefits, and not just from ogling the bridesmaids. You can charge them a fortune for the tax advice which led them to get married in the first place.
Naturally. IHT planning, and all that. It's not as if the parents need the money, after all, given that (1) it was an unexpected windfall, and (2) they thought they could afford to do without a year's income. I'll bet they're kicking themselves not to have put the house in her name from the outset.
There used to be an IHT problem before PETs came in when the groom is saying "with all my worldly goods I thee endow" before he's married and beneath the inter spouse exemption? :)
Thank you for your comprehensive reply and the grammar lesson.
This is my first question to the group, although I am an avid watcher.
I am easing into retirement and my pension, if I choose to take it in the same year that I sell the house, will bring me into the 20k income bracket. But I have the option to defer the pension and I can take a 25% lump sum (say 100k) which would bring in about 4k if invested.
Life is very complicated. Time for a G&T while I contemplate my options.
It's too late to make a PPR election as it was bought more than two years ago. So it's not enough to "live" there, they'd have to live there.
By the way, the 36 month rule doesn't extend to periods prior to first actual PPR status, does it? I mean, having had the daughter live there for 3 years, they couldn't live there for 1 year, then sell, and get 75% PRR, could they? They'd only get 25%, no?
In strictness, you are correct - unless the size of the property precudes the occupation by additional individuals, or there was a formal tenancy agreement. The IR can allow late elections in certain circumstances.
No, *any* period of PPR triggers the 36 month exemption, as it relates to
*ownership* and not occupation - see sections 222 & 223 TCGA 1992. However, in your example, there will be 12 months of "double counting", but you will always get a t least 36 months exempt.
No, AIUI it works forwards, not backwards. Whenever there is a change to a person's set of PRs, that person may elect which PR in the new set is to be the P PR, and the election must be made within two years of the change taking place.
They'd need to be careful about the extent of leeway they allow, lest they be accused of unfairness when they disallow it. Any idea what sort of circumstances?
Incidentally, I thought it was when there is a change to the set of Private Residences. A change doesn't necessarily have to be associated with a sale or purchase. For instance, suppose I own two properties, live in one, and rent out the other, then obviously I have only one residence, since the presence of the tenant precludes that property being *my* residence. And since there is only one, it must be the principal one. Then my tenant moves out and is not replaced, and I use the property as an occasional home from home. I would presume that this constitutes a change in my PR set, and makes the ex-let property eligible for election as PPR.
I'll have a look. I'm sure I saw something official-looking which claimed otherwise, but cannot remember where. It argued that the whole basis for the rule lies in helping genuine owner-occupiers cope with problems arising from being unable to sell in a timely fashion after having moved. It doesn't seem fair to extend what is in effect a concession to someone flogging a BTL after moving in for a week purely for tax avoidance reasons.
You don't really mean double counting, do you? Overlaps *don't* count double. I.e. if you have 3 years letting followed by 1 year actual PPR, the PPR year simply triggers the 36 months, but does not make them 48.
In that specific situation, do you still get Lettings Relief for year one, or is that restricted to post-actual-PPR letting?
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