Tax and reliefs on sale of rental property

[tonywooding]

Dear Sir

I bought my flat in London in 1991, lived in it until 1996, and have rented it out ever since. From 1997 to 2000 I worked abroad during which time I got married. I came back to the UK in 2000 but, because my job back in the U.K was in Oxford, and because I now had a family of four, I was unable to re-locate back to the London property. I therefore rented for a year in Oxford, and then bought a second property whilst keeping the London flat. I transferred the London flat into joint names with my wife in 2001, for rental income tax purposes.

Can someone please advise me the following -

1.Given the circumstances, can I still claim Private Residence Relief on the London Property for the period I worked abroad (without having to live in it again at some time in the future)?

2.Can I claim Private Residence Relief on the London property for the year I rented in Oxford (prior to buying the second property)?

3.Considering my wife has never lived in the London property, although it is now in joint names, when we come to sell the property is she entitled to the same reliefs in the same quantities as myself, most particularly Lettings Relief and Private Residence Relief?

4.If she’s not entitled to the same reliefs as me, and I therefore choose to transfer the London property back into my own name prior to selling, does the fact that she has at some time joint owned the property with me, affect the reliefs I can claim?

Thanks

Tony Wooding

[plym77]

Hi Tony

I am a Chartered Tax Adviser and can help you on this matter.

Broadly the answers to your questions are:

Queries 1 and 2 - Depends - ordinarily for PPR exemption to be available you must occupy the property before and after the periods of absence, however, there is a concession that says in some circumstances you can claim PPR if you have not returned to the property as you are unable due to the terms of your employment - AND - the fact that you bought another property can impact the decision. This is not clear cut and is something you would need specific advice on. Dont forget you get the last 36 months PPR irrespective (as it was at some point your PPR).

3. Yes - As you are married, your wife takes on her share at no gain/no loss, which means she inherits your reliefs - being PPR, indexation and taper relief. She will also be entitled to lettings relief - meaning you have doubled up on relief. You each have a CGT annual exemption also, currently £8,800.

4. Not really applicable due to the positive answer at 3.

There may be further planning that could be done to mitigate any resulting CGT payable.

I would suggest that you seek advice on specific figures before you assume that everything is covered by PPR - if it is not wholly covered you will need to report the sale on your individual tax returns. even if there is no CGT payable.

The above advice is given generally and you should seek specific tax advice before making any decisions. Should you require specific advice, please do contact me (full details in the selected suppliers section) and I would be happy to look at your circumstances for you.

Email: sherena.glanton@horwath.co.uk

I hope the above information helps

Regards

Sherena (Plym77)