Can we sell my husband’s flat without paying capital gains tax?

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My husband and I each own flats in London. I own mine outright and he has £25,000 left on his mortgage, both with our single names on the respective deeds. We have been living in my flat and would like to sell my husband’s property. Officially, he is still registered on the electoral roll and uses it as an office.

Would it be taxed as a second home and is there any way to avoid that? Also, if I wanted to pay off my husband’s mortgage given rising rates, would that make me look like a joint owner, even though I am not on the deeds?

Ed Cubitt, associate in law firm Withers’ private client and tax team, says that generally speaking when an individual sells their sole or main home and realises a capital gain they can seek relief from capital gains tax (CGT) by what is known as principal private residence (PPR) relief. However, spouses and civil partners who live together are only allowed one main home between them for PPR relief purposes. From your description, it sounds like your, and your husband’s, main home since your marriage has been your flat.

If your husband was occupying his flat as his main home from its purchase until your marriage, he will still be able to claim PPR relief for the period before your marriage, as well as the past nine months of his ownership, as long as the property has been the seller’s main home at some point. 

Since the capital gain is apportioned over the period of ownership, your husband will end up with a capital gains tax bill on only part of the gain. If he hasn’t otherwise used his annual capital gains tax allowance, that will be available to set against any gain as well.

Where a married couple or civil partners — or an individual — own more than one property, it is possible to elect which of their residences is to be the “main” residence for PPR purposes. Such an election is made in writing to HM Revenue & Customs; spouses and civil partners must make a joint election, even if the property that is to be their joint PPR is owned by only one of them. 

The election must be made within two years of acquiring another residence. That might happen as a result of marrying or entering into a civil partnership, in which case the two-year period starts at the date of the marriage or civil partnership. In this case, however, it sounds as though your husband’s flat has not continued to be used as a residence. Even if that’s incorrect, electing for your husband’s flat to be treated as your joint PPR at this stage (if within time) could affect how far PPR is available on an eventual sale of your property, so you should seek advice on this. 

Turning to your second question, the simplest way to discharge the mortgage on your husband’s flat would be for you to gift him cash, which he could use to pay off the balance of the loan. This would minimise the potential for you to be treated as purchasing an interest in his flat or otherwise being treated as a co-owner.

Given the value of the gift, you may wish to document it by signing a simple deed of gift, which could also confirm that you would not be acquiring an interest in the property. There are no tax implications in you making such a gift, but you should be aware that, once you have made the gift, it will be up to your husband to choose whether to use it to pay off his mortgage or not. 

How can I collate my pensions from abroad?

I worked abroad for half my working life and have a number of international pensions. What should bear in mind if I want to collate these now that I am permanently back in the UK?

Marilyn McKeever, a partner in BDB Pitmans private wealth team, says the scheme rules will determine whether the pensions can be “collated” in the sense of being transferred into a single scheme. Even if this is possible, you will need to be careful how you do it.

I assume you’re also concerned about how scheme benefits will be taxed in the UK. If the countries where the schemes are established levy tax on the payments, you may need to claim double tax relief. 

If you are resident in the UK and you take the benefits as a pension you will be liable for income tax. However, if you receive the benefits as lump sums, different rules apply. Although they are anti-avoidance provisions, they also catch genuine international pensions.

The rules to look out for are called the “disguised remuneration” rules and these impose income tax and national insurance charges on lump sum benefits. A transfer from one scheme to another to consolidate the pensions could also trigger a tax charge.

As you were a non-UK resident for many years you should get tax relief on the lump sum in relation to any payments made to the scheme while working overseas made before April 6 2017. Benefits accrued after April 5 2017 are taxable, even if you were non-resident.

If benefits escape the disguised remuneration rules, they may fall foul of the Employer-Funded Retirement Benefits Schemes (EFRBS) rules. The EFRBS rules treat any lump sum benefits from an unregistered pension scheme as employment income and they will be subject to income tax and national insurance contributions.

However, relief may be available to people who have worked abroad for a proportion of the period of their employment. Depending on the proportion, the tax may be reduced, possibly to nil. This relief is only available if the recipient of the lump sum is non-UK resident when they receive it.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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