Tax Question and Answer Service
Sample Answer
Note: This sample should not be used for tax planning purposes. It is only an example of the kind of detail you can expect in your answer.
Question:
I own a house in which I live with my fiancé. The purchase price of my house was £320,000 in 1996 and its current market value is £625,000. My fiancé also owns his own house, which he purchased in 1999 for £105,000 and which is now worth about £200,000. For Capital Gains Tax purposes, is it better for him to sell his house before or after we get married?
Answer:
Your actual wedding date is not the most crucial factor here and your fiancé may not need to sell his house before then to be exempt from Capital Gains Tax ("CGT").
Your marriage will, however, mean that, after that date, the two of you, as a married couple, will only be entitled to have one private residence exempt from Capital Gains Tax between you.
What is more important is the actual status of your fiance's property. Did he live in it before moving in with you? If it has never been his private residence then, as yet, there is no exemption available. I will examine both possible scenarios:
Scenario 1:
Assumed: Your fiancé lived in the property for a period before moving in with you.
If it was his "only or main residence" at that time, then it is eligible for some CGT exemption. I will assume here that he did not have any interest in any other property, which might also have been his residence, so that the property under discussion did indeed qualify.
As his private residence, it is exempt from CGT for the period he resided in it and for the last 3 years of his ownership (regardless of where he was living).
In other words, as long as he resided in the house from the date of purchase, it will remain completely exempt from CGT until the third anniversary of the day he moved out.
Scenario 2:
Assumed: Your fiancé has never lived in the property.
If your fiancé has never resided in the property then, at present, it is fully chargeable to CGT.
However, as long as he does not have another private residence of his own, and does not currently own any part of your property, he can still move into the property before you are married and establish a period of residence. If he does this, then the period of residence and/or the last 3 years of ownership will be exempt from CGT.
Summary:
In summary, No - your fiancé does not necessarily need to sell his house before your wedding.
If he lived in his own house from the date of purchase, it will be exempt from CGT as long as he sells it by the third anniversary of the day he moved out.
However, if he hasn't yet lived in his house, then he should do so for a period prior to your marriage. The property will then be exempt until the third anniversary of its purchase.
Some other points:
If your fiancé lets out the property as residential accommodation, the amount of gain on it which is exempted by virtue of it being his main private residence is doubled (up to a maximum of £40,000).
Furthermore, if your fiancé cannot get total exemption, then, after the third anniversary of the purchase, he will also be entitled to a 5% reduction in the chargeable Capital Gain on the property. This exemption increases to 10% after 4 years, 15% after 5, etc, until a 40% reduction is achieved. Finally, even after this reduction, he is also entitled to an annual CGT exemption (currently £7,200).
After you are married, your fiancé could transfer half of his property to you, (transfers between husband and wife are free from CGT). Your annual exemption would then also be available against any chargeable Capital Gain.
Ready?
