Examining – with worked examples – Private Residence Relief when property is transferred between spouses.
If a residence is transferred between spouses or between civil partners, of each other and who are living together, whether by sale or by gift, the period of ownership of the transferee is treated by TCGA 1992 s222(7)(a) as beginning at the beginning of the period of ownership of the transferor. This also applies where the residence is transferred from one to the other on death.
This provision only applies for the purpose of computing private residence relief. It has no effect on the computation of the gain which arises on any disposal by the transferee spouse or by the transferee civil partner.
The following conditions must be fulfilled:
- – the spouse or the civil partners must be living together and the residence must be their only or main residence at the date of the transfer. If the residence passes from one to the other on the death of either of them they must have been living together and the residence must have been their only or main residence before the death of the transferring spouse or civil partner
- – the extended period of ownership is subject to the limit of TCGA 1992 s223(7) for the purpose of computing the relief due on any subsequent disposal.
In some situations the extended ownership period will not be to the advantage of the transferee.
Ann and Andrew were a married couple and lived together in a house which Ann purchased in March 1990, although for the first five years of her ownership the house was rented to tenants. When Ann died the house passed to Andrew, who continued to occupy it as his only residence until he sold it.
If Andrew was able to account for the period he owned the house, then private residence relief would be available for this whole period. However, he needs to consider the ‘extended ownership period’ from March 1990 to the date he sold the house. During this extended ownership period the house was rented to tenants which means that the private residence relief will be restricted.
Bob and Brenda each owned a house when they married on 1 March 1995. After they married they nominated Brenda’s house to be their main residence as from 1 March 1995. Brenda originally purchased the house on 1 September 1990.
Brenda died on 1 February 2015 and her house was transferred to Bob at a probate value of £400,000. Bob moved out of the house on 1 February 2015 and moved into his other house which he still owned and this other house became his main residence. The former main residence remained empty until it was sold on 1 January 2019 for £380,000.
Bob’s loss on the sale of the house is as follows
Sale proceeds £380,000
Less cost (probate value) £400,000
As private residence relief is available on the property only part of the loss will be an allowable loss. Bob would take over his wife’s period of ownership of the property.
Period of ownership 01.09.90 to 01.01.19 = 339 months
Period of only or main residence 01.03.95 to 01.12.15 = 238 months
Final period allowed = 18 months
The loss is restricted by £20,000 x (238 + 18)/321 = £15,103
The allowable loss is reduced to £4,897
The above is explained in HMRC Capital Gains
The legislation which deals with ‘private residence relief’ often referred to as ‘principal private residence’ relief (or PPR relief) is Taxation of Chargeable Gains Act 1992 sections 222 to 226. In particular section 222(7) states the following in relation to the period of ownership when there is a transfer between spouses:
In this section and sections 222 to 226, ‘the period of ownership’ where the individual has had different interests at different times shall be taken to begin from the first acquisition taken into account in arriving at the expenditure which under Chapter III of Part II is allowable as a deduction in the computation of the gain to which this section applies, and in the case of an individual living with his spouse or civil partner:
(a) if the one disposes of, or of his or her interest in, the dwelling-house or part of a dwelling-house which is their only or main residence to the other, and in particular if it passes on death to the other as legatee, the other’s period of ownership shall begin with the beginning of the period of ownership of the one making the disposal, and
(b) if paragraph (a) above applies, but the dwelling-house or part of a dwelling-house was not the only or main residence of both throughout the period of ownership of the one making the disposal, account shall be taken of any part of that period during which it was his only or main residence as if it was also that of the other.