HomeTaxTales from the telephones - PPR on marriage

Tales from the telephones – PPR on marriage

Here are some more sample questions submitted by accountants to the ICPA/Qdos telephone helpline


Q: I have clients who are husband and wife and own a rental property that qualifies as a Furnished Holiday Let (FHL). The rental income has been split 50/50 on the Self Assessment Tax Returns as it is jointly held, but they have asked if it can be split 25/75 in favour of the wife as she spends a greater part of the time in managing the property, etc. Can you advise?

A: Where a husband and wife (or civil partners) carry on a business that meets the FHL criteria then the profits or losses may be split in a way that the parties agree (this is confirmed in the HMRC Property Income Manual at PIM4105, https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4105).

Within the legislation, in the Income Taxes Act 2007 S836 (1) and (2) it states that income arising from property held in the names of individuals who are married to, or are civil partners of, each other, and who live together will for income tax purposes be treated as if they are beneficially entitled to the income in equal shares (which will be the case for an ordinary property letting business).

However, at ITA2007 S386 (3) it states that this treatment does not apply in relation to any income within certain exceptions of which D would apply to your client and states:

Exception D

Income arising from a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).

This advice goes with the warning that the client must be able to demonstrate on what basis the split has been made from a commercial point of view as HMRC could challenge the split if they feel that it is being done to avoid paying tax.

Q: I have two clients who jointly purchased their main residence after they got married. The husband owns a property in his sole name that used to be his main residence prior to getting married and this is now let.  Their financial advisor has advised them that it would be beneficial for the rental property to be transferred into joint names so that the income will be split 50/50, reducing the tax burden as he a higher rate taxpayer and she is basic rate. The thing that is puzzling me is that they have asked if the client has used up his Capital Gains Tax Annual Exemption for this year – surely this isn’t relevant.


A: Yes, you are correct, it is not relevant whether the husband has used his CGT Annual Exemption for the year of transfer. Under Taxes Capital Gains Act 1992 S58 where an asset is transferred between two spouses (or civil partners) who are living together, the disposal takes place on a no gain/no loss basis, which means that the husband’s capital gain will be nil and the wife is deemed to have paid consideration equal to his base cost for the asset. In this scenario, it could be a very costly mistake to transfer the property to gain the tax advantage for income tax purposes.

Where a property is transferred between a husband and wife who are living together (whether by sale or gift) for principal private residence (PPR) relief purposes the transferee is treated by TCGA1992 s222 (7) (a) as beginning at the start of the transferors period of ownership. In order for this to apply they must be living together (as defined by Income Taxes Act 2007 s1011), and the residence must be their only or main residence at the date of the transfer.

In your clients’ case the wife would not inherit the husband’s PPR history as they would not have been living in the property as their main residence at the date of transfer.

The result on disposal would be the share of property held by the wife coming within the charge to Capital Gains Tax, when previously it would have been exempt/partially exempt for the husband as he was entitled to PPR relief. In addition to the loss of PPR relief there could also be the loss of some Lettings Relief for the husband.


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