Letting relief/ joint ownership

[unknown]

I cannot figure out how to calculate CGT for my client, please does anybody have any ideas?

Say, Mrs inherited a property in May 2001 which was occupied by tenant at the time. In Oct 2001 it became vacant and PPR for the Mrs. She also transferred half of the property to her husband in Jan 2002. Property was sold Dec 2004.

Does Mrs qualify for letting relief to the whole property or to her half only?
Does Mr qualify for letting relief?
Is it right that she qualifies for 3 years for taper relief purposes and he does for 2 (her period of ownership does not count for him)?

Thanks

[Worldlife]

for my client

In what professional capacity are you advising the client?

It is quite worrying that you need to put a question like this when the answer can be found by a diligent search on these forums.

There is a well researched answer by Karongo in post 2 of the thread Capital Gains Questions (http://www.landlordzone.co.uk/forums/showthread.php?t=1587)

[Worldlife]

@unknown

I hope you agree that it might not be in the interests of consumers if a website such as this became the source for unqualified people to give advice beyond their remit or training.

Within that context I apologise for any misunderstanding caused by my reply.

The more people we have on this forum able to give professional advice the better it is for all visitors.

If your complex query is answered I hope you will in future give the benefit of your experience to people who have simpler problems.

Edit - BTW this is a response to a post, that now seems to be deleted in which "unknown" was somewhat upset by my first post. If I recall correctly in that in the deleted post "unknown" gave his professional status as "Tax Assistant".

[unknown]

@unknown

I hope you agree that it might not be in the interests of consumers if a website such as this became the source for unqualified people to give advice beyond their remit or training.

Within that context I apologise for any misunderstanding caused by my reply.

The more people we have on this forum able to give professional advice the better it is for all visitors.

If your complex query is answered I hope you will in future give the benefit of your experience to people who have simpler problems.

Edit - BTW this is a response to a post, that now seems to be deleted in which "unknown" was somewhat upset by my first post. If I recall correctly in that in the deleted post "unknown" gave his professional status as "Tax Assistant".

I am sorry, but I am now completely confused. Do you want me to leave the forum and never come back or do you apologise?
I am indeed tax assistant, and not tax manager, but I work in taxes for less than one year and still learning. The reason that I ask my questions is because I have no one at the moment to advise me and yet I would like to solve the problem. If my questions are considered to be "commercial" and not appropriate to ask on forum like this, please let me know. However I ask my questions not because I want to receive the knowledge for free and then sell it, but because I like what I am doing and do not like to the leave problem half-solved, I will find the answer earlier or later anyway, here or elsewhere... but really I am confused now...Everything I wanted is just to be able to talk to colleagues who are more advanced than myself, besides I find it very difficult to read law books as I am not English. And I am not advising anyone here, I just ask for help myself.

Please let me know if I should delete my thread.

While I was answering I found the answer to my previous question, but then it follows that firm of solicitors sent us wrong CGT planning - surely I had to check the information before going to the partners and blaming someone! But does not it mean that I am not that bad tax assitant if I can find mistkes in professional solicitors tax planning? :)

[Tax Accountant]

I am also confused about all the unnecessary wranglings going on. There is no need for this.

There is also no reason why other professionals or semi-professionals should not post queries in this forum. It is open to all.

To deal with the query itself, the querist has now apparently found the answer but does not say what it is.

I would be very interested in seeing his answers because I am not too sure even after my extensive research all this morning.

Ramnik

[unknown]

I am also confused about all the unnecessary wranglings going on. There is no need for this.

There is also no reason why other professionals or semi-professionals should not post queries in this forum. It is open to all.

To deal with the query itself, the querist has now apparently found the answer but does not say what it is.

I would be very interested in seeing his answers because I am not too sure even after my extensive research all this morning.

Ramnik

Thanks a lot for support! :)

Ok, my answers. First of all 2 documents helped me

1. Your (Karongo) answers in the old thread called (not sure, but I think) CGT
2. This article: http://www.capitalgainstax.org.uk/article.html

The answer (according to the source No2) to the first 2 questions is yes, they both seem to qualify for letting relief.

The answer to the third question seem to be that they both qualify for the same taper relief, that is based on three years, according to this:
(IR web-site, http://www.hmrc.gov.uk/leaflets/cgt1.htm#f14)

"If you dispose of an asset that you acquired from your husband or wife, you work out the qualifying holding period by reference to the date on which your husband or wife originally acquired the asset."

I was also told that in a situation where person acquires the asset, then marries, than transfer the asset to the spouse, taper relief for the transferee will be based on the date of acquisition of transferor (though did not find any official confirmation to this information).

However I am still slightly puzzled as, according to the solicitors' document which I mentioned above, their calculations of taper relief are based on 3 and 2 years accordingly. I just wonder can it be because in this particular case FA 2004, Sch 22, s 8 applies, as according to my docs "Mrs' acquisition cost is reduced by the holdover claim made when she became absolutely entitled to the property. On any future disposal by Mr or Mrs, TCGA s226A will apply". I know that PPR is restricted in this case and 36 months rule does not apply in full, but not sure about letting relief where holdover claim has taken place....

[Tax Accountant]

Thanks a lot for support! :)

Ok, my answers. First of all 2 documents helped me

1. Your (Karongo) answers in the old thread called (not sure, but I think) CGT
2. This article: http://www.capitalgainstax.org.uk/article.html

The answer (according to the source No2) to the first 2 questions is yes, they both seem to qualify for letting relief.

The answer to the third question seem to be that they both qualify for the same taper relief, that is based on three years, according to this:
(IR web-site, http://www.hmrc.gov.uk/leaflets/cgt1.htm#f14)

"If you dispose of an asset that you acquired from your husband or wife, you work out the qualifying holding period by reference to the date on which your husband or wife originally acquired the asset."

I was also told that in a situation where person acquires the asset, then marries, than transfer the asset to the spouse, taper relief for the transferee will be based on the date of acquisition of transferor (though did not find any official confirmation to this information).

However I am still slightly puzzled as, according to the solicitors' document which I mentioned above, their calculations of taper relief are based on 3 and 2 years accordingly. I just wonder can it be because in this particular case FA 2004, Sch 22, s 8 applies, as according to my docs "Mrs' acquisition cost is reduced by the holdover claim made when she became absolutely entitled to the property. On any future disposal by Mr or Mrs, TCGA s226A will apply". I know that PPR is restricted in this case and 36 months rule does not apply in full, but not sure about letting relief where holdover claim has taken place....


Earlier, you stated ''I am indeed tax assistant, and not tax manager, but I work in taxes for less than one year and still learning.''. On the basis of your reply above, you are extremely knowledgable and will go very far. Your quest for digging into the statute for the right answer, against the solicitor's answer, is very admirable. Keep it up and good luck to you all the way.

In principle, I agree with the answers. However, I will come back with any further comments at a later time.

The only comment I will make at this time is to say that if the house was inherited by Mrs, the base cost will be the value at death. I say this because I am confused by your reference to the holdover relief etc in your above reply.

Ramnik

[unknown]

Earlier, you stated ''I am indeed tax assistant, and not tax manager, but I work in taxes for less than one year and still learning.''. On the basis of your reply above, you are extremely knowledgable and will go very far. Your quest for digging into the statute for the right answer, against the solicitor's answer, is very admirable. Keep it up and good luck to you all the way.

In principle, I agree with the answers. However, I will come back with any further comments at a later time.

The only comment I will make at this time is to say that if the house was inherited by Mrs, the base cost will be the value at death. I say this because I am confused by your reference to the holdover relief etc in your above reply.

Ramnik

Thank you so much for your compliments, they mean so much to me!
From my side I can only agree to "Thanks to Ramnik" thread, though I realise that it sounds like I try to flatter you :)
Sorry for confusion, it comes from my lack of experience with trusts. To be precise, the property was hold in accumulation and maintenance trust and in May 2001 Mrs became 25 and absolutely entitled to the property. It also says that "A claim for holdover relief under s260 TCGS 1992 was made".
Thanks for the help.

[Worldlife]

by unknown However I ask my questions not because I want to receive the knowledge for free and then sell it, but because I like what I am doing and do not like to the leave problem half-solved, I will find the answer earlier or later anyway, here or elsewhere

Accept my apologies for the misunderstanding.

Glad the problem has now been resolved.

[unknown]

Accept my apologies for the misunderstanding.

Glad the problem has now been resolved.

:)

[Tax Accountant]

We do live in a stressful world and small comments made unintentionally could easily get blown out of proportion.

I am glad to see that everyone has 'kissed and made up''.

Q1: Does Mrs qualify for letting relief to the whole property or to her half
only?:

A1: Mrs qualifies for letting and other reliefs against only her half share.

Q2: Does Mr qualify for letting relief?

A2: You have to remember that half the property was transferred to Mr AFTER it ceased to be let. Therefore, it was never let as residential accommodation 'at anytime in the owner's period of ownership' and therefore the lettings relief would not appear to be due. However, by reason of TCGA92/S222(7)(a), the period of ownership of the transferee (Mr.) is treated as beginning at the start of the period of ownership of the transferor (Mrs). If so, lettings relief would appear to be due. But then, Inland Revenue Manuals at CG64921 states that the extension referred to above apply ''only for the purpose of computing the amount of private residence relief due; they do not affect the computation of the gain itself.'' If so, the ownership period extension may not be applicable for the purposes of the lettings relief. However, I have failed to trace any reference to this interpretation anywhere else. Therefore, I would hesitate to say with absolute confidence whether lettings relief is due in your example. Perhaps you can run this past your tax partners to see what they make of this.

Q3: Is it right that she qualifies for 3 years for taper relief purposes and he
does for 2 (her period of ownership does not count for him)?

A3: I believe Taper Relief is applicable by reference to the transferor spouse's date of original acquisition.

[unknown]

We do live in a stressful world and small comments made unintentionally could easily get blown out of proportion.

I am glad to see that everyone has 'kissed and made up''.

Q1: Does Mrs qualify for letting relief to the whole property or to her half
only?:

A1: Mrs qualifies for letting and other reliefs against only her half share.

Q2: Does Mr qualify for letting relief?

A2: You have to remember that half the property was transferred to Mr AFTER it ceased to be let. Therefore, it was never let as residential accommodation 'at anytime in the owner's period of ownership' and therefore the lettings relief would not appear to be due. However, by reason of TCGA92/S222(7)(a), the period of ownership of the transferee (Mr.) is treated as beginning at the start of the period of ownership of the transferor (Mrs). If so, lettings relief would appear to be due. But then, Inland Revenue Manuals at CG64921 states that the extension referred to above apply ''only for the purpose of computing the amount of private residence relief due; they do not affect the computation of the gain itself.'' If so, the ownership period extension may not be applicable for the purposes of the lettings relief. However, I have failed to trace any reference to this interpretation anywhere else. Therefore, I would hesitate to say with absolute confidence whether lettings relief is due in your example. Perhaps you can run this past your tax partners to see what they make of this.

Q3: Is it right that she qualifies for 3 years for taper relief purposes and he
does for 2 (her period of ownership does not count for him)?

A3: I believe Taper Relief is applicable by reference to the transferor spouse's date of original acquisition.

Dear Karongo, thanks a lot for your answer, as I now realise that my original answer was not quite correct. However I now found some additional information (spent the whole evening trying to understand it :)), which ties up with your answer.
This is from old Tax Planning for Private Residences book. It says:

TCGA 1992, s222(7) prescribes what happens where there is a gift of a dwelling-house or an interest therein by one spouse to the other. The period of ownership of the donee is treated by s222(7)(a) as beginning with the period of ownership of the donor.

However, where the dwelling-house was not the only or main residence of both spouses throughout the donor's period of ownership, then to the extent that during that period the house was the donor's only or main residence, it is treated also as being the donee's (TCGA 1992, s222(7)(b)).

To summarise
1. There is a gift of an interest by Mrs to Mr
2. Property was not the only or main residence for both Mr and Mrs throughout the Mrs' period of ownership
3. House was owned by Mrs from May 2001 to Dec 2004
4. House was Mrs' only or main residence from Oct 2001 to Dec 2004
5. Mr' period of residency starts when Mrs' main residency starts, that is Oct 2001

Is it right?

(it matches to what you said about letting relief, but then it appears that perhaps solicitors were right about taper relief, as if this logic is correct then taper relief will differ. )

[Tax Accountant]

Based on what you say, period of ownership started after the letting. Therefore, there has been no letting by the Mr. If so, he would be denied lettings relief. I would still try to claim it, citing the extension of the period of ownership for PPR relief purposes.

As far as the taper relief is concerned, I believe that Mr and Mrs qualifies for the same period, ie Mr's relief is computed by incluing the period of ownership by Mrs. I do not believe that the restriction in S222(7) is applicable to Taper Relief.

I cannot comment on the specific case of your client nor how the solicitor has computed the gain.

Ramnik

[unknown]

Based on what you say, period of ownership started after the letting. Therefore, there has been no letting by the Mr. If so, he would be denied lettings relief. I would still try to claim it, citing the extension of the period of ownership for PPR relief purposes.

As far as the taper relief is concerned, I believe that Mr and Mrs qualifies for the same period, ie Mr's relief is computed by incluing the period of ownership by Mrs. I do not believe that the restriction in S222(7) is applicable to Taper Relief.

I cannot comment on the specific case of your client nor how the solicitor has computed the gain.

Ramnik

Thank you very much :)

[Tax Accountant]

Thank you very much :)

You are welcome

Ramnik