Claiming a PPOR each?

[Montoya]

Hi All.

Love this forum and have been reading for a while, and now its time for my first post.

A very good friend and I have purchased our second investment property. The first one was purchased as an IP straight out, and now this second one we are planning on living in for 6 months to take advantage of the six month / six year CGT rule. We have purchased as tenants in common (50% share each).

My questions are:

a) do we BOTH have to live there for the 6 months to claim the CGT exemption?
b) if only one of us needs to live there, when we buy our third property (hopefully in the next 12-24 months) can the other person then claim the other property as their PPOR?

If its a no to b), would it be possible to do if the properties were purchased as joint tenants instead?

Thanks in advance for your replies.

Montoya

 

[Terry_w]

Assuming you are not defactos then you will each have a distinct interest in the property. ie it is as if you each owner a property separate to each other. Your 50% is considered your property and her 50% hers. So if you live in the property your share would be exempt from CGT. If she didn't then her share would be subject to CGT.

 

[Montoya]

TerryW, i thought that may be the case whilst opting for a tenants in common agreement instead of joint tenancy. If the later type of agreement changes this, it may be worth looking at purchasing the next property in that manner whilst taking into account that the right of survivorship would come into play. I guess we can only hope that if it got to that stage, each would do right by the other person and pass on any financial gain to the nominated beneficiary.

Thanks for the prompt reply.

 

[Terry_w]

For CGT reasons Joint Tenants are considered same as TIC 50/50. Completely different estate planning aspects though

 

[Paul@PFI]

Hi All.

and now this second one we are planning on living in for 6 months to take advantage of the six month / six year CGT rule. We have purchased as tenants in common (50% share each).

My questions are:

a) do we BOTH have to live there for the 6 months to claim the CGT exemption?

If you live there you get your half share of the CGT MR exemption for six months. Then after you move out if you dont occupany another MR your 50% share will be CGT exempt for up to 6 years. This same test is seperately applied to your friend. If she bought a home after 12 months her MR exemption would cease and yours continue.

b) if only one of us needs to live there, when we buy our third property (hopefully in the next 12-24 months) can the other person then claim the other property as their PPOR?

There is no test for just one of you.

If its a no to b), would it be possible to do if the properties were purchased as joint tenants instead?

No change. The test applies to each of you independently

Thanks in advance for your replies.

Montoya

See comments in bold

 

[Paul@PFI]

Friends buying IP can often end in difficulty and stamp duty. The problem with TIC and JT is both are a fixed form of ownership. Thing is after 20 years of tax work I see that the decison made 20 years ago will NOT be right today. But by then the stamp duty issues are a cloud that prevents change. You cant sell your share to the other of even change % without large costs.

Have you considered the merits of a fixed form of ownership that also allows change to the % split later that doesnt involve duty. Now you have "used" your MR exemptions its something to consider. (A UT cant access the MR exemption - Since you have both used it then there is no concern)

A Unit Trust can allow each of you to own a % of the trust. It owns the IP. You share is a fixed right. If things dissolve (friendly or otherwise) later you could (for example) bring in new investors (ie a future husband/wife), cease to be an investor, change % etc.