23 October 2023

Is there a capital gains tax problem on sale of marital property? Michael Armstrong and Rebecca Anstey write for Taxation

Private Client Counsel, Michael Armstrong, and Private Client Associate, Rebecca Anstey, have written a piece for Taxation answering the reader’s question ‘Is there a capital gains tax problem on sale of marital property?’

In the article, Michael and Rebecca focus on a case study of a couple. Mrs B suffered a serious psychotic episode two years ago and is now permanently in hospital care. Mr B wishes to sell their home, so would like to know:

  • whether principal private residence relief (“PPR relief”) will apply; and
  • if not, whether he could transfer her share into his own name before selling using the lasting power of attorney Mrs B granted him.

Michael and Rebecca highlight that:

  • Mr and Mrs B will still be treated as ‘living together’ and having one residence for the purposes of PPR relief unless separated under a court order, by deed of separation, or in circumstances in which separation is likely to be permanent.
  • If Mr and Mrs B are permanently separated, Mrs B should still be eligible to claim PPR relief on her share of the property as the final period allowance should be extended to 36 months because she is a long-term resident in a ‘care home’ (defined in the legislation to include any establishment that provides accommodation and nursing or personal care).
  • Where an asset is transferred between spouses, such as the proposed transfer to Mr B, it will be a “no gain, no loss” transfer. This means that, unlike other gifts, no CGT liability should arise as the recipient spouse takes over the other spouse’s acquisition cost. However, previously, this treatment did not apply to separated couples after the end of the tax year in which they separated.
  • The provisions of Finance (No.2) Act 2023 (in force from 11 July 2023) now mean that if Mr B were to acquire his wife’s share of the property, then this no gain/loss treatment could now continue until the end of the third tax year after the couple ceased living together (even if Mrs B were not a long-term care home resident).
  • If Mrs B does not have capacity to make decisions, Mr B should be able to use the LPA to manage Mrs B’s share of the property but the court would need to approve a gift of it to Mr B and any sale or other transfer would need to be in her best interests.

Download the full article here.

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