Property and Tax Issues

Isis' Maggie Fleming answers readers questions in Saturday's Daily Telegraph newspaper for the Property Clinic section.

The questions and answers are reproduced for you here.

This page contains Questions & Answers from June 2005. Older articles are accessed through our main Property Tax page.

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My wife and I are planning to buy a property which will be our main residence for a while, but wish to keep open the possibility of buying a second property and keeping this one as an investment. Please can you tell us whether it is better to purchase this property in joint names, or in one of our names alone so that we may be able to purchase a second property in the other name and avoid Capital Gains Tax if we sold one of them at a later date?

I have the larger income and am a higher-rate taxpayer. If the sole-name option is possible, would it be better to buy in my wife's name so I can raise a larger mortgage later on, or in my name as I may be able to offset future buy-to-let expenses against tax.

Maggie Fleming writes:

First of all, you should be aware that a married couple can have only one residence qualifying for the CGT exemption at any time. From the point of view of the exemption itself, therefore, it does not matter whether the property is purchased in joint names or not.

It is difficult to say whether it is better to own the property jointly or not. If it is in your wife's name, she will pay income tax at a lower rate on any rental profit - revenue expenses can be offset only against rental income, not income from other sources.

However, when the property is sold, it may be better to have it in joint names, as you will both be entitled to the annual personal CGT exemption on the first part of the gain. You should bear in mind that a husband and wife can transfer assets between themselves at any time without any CGT consequences. However, the special further exemption of up to £40,000 where a principal private residence (PPR) has been let out will only apply to each of you if you are both named on the tenancy agreements and you co-owned the property at the time it was let.

When you purchase the first property, it should be your intention to live in it as your home. You say you will live in it "for a while" - if your period of residence is short, the Revenue could argue that you are not entitled to PPR relief at all.