Romance and the Revenue

Married couples with two homes must pay tax on one, so decide quickly which it is to be
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The Independent Online

When they get married, a couple pledge to stay together for richer, for poorer. What they probably don't realise is that they might end up poorer because of the higher taxes.

When they get married, a couple pledge to stay together for richer, for poorer. What they probably don't realise is that they might end up poorer because of the higher taxes.

When a single person sells their home, they do not have to pay tax on any gains. However, it is different for a married couple. For tax purposes, they are deemed to live together, and are allowed only one home between them.

That's fine if you are actually living in the same place. But lots of couples work apart - you may own a flat in London, while your partner owns a house in Devon. If a couple is merely "living together" they are, paradoxically, allowed to live apart for tax purposes. If you are single and sell your flat in London there is no tax to pay; if your partner sells their house in Devon, it is tax-free too.

But all this changes when you marry. You and your spouse have to decide which of your two properties is your "main residence". When you sell the house you have chosen as your main residence, there will be no tax. But if you sell the other property you may face a tax bill.

Your main residence for capital gains tax doesn't have to be the property you live in most of the time. So if, for example, you worked in London during the week, and your partner worked in Devon, and you both spent the weekends and holidays in Devon, that house might really be your main residence.

But if you expected the London flat to increase in value more quickly, you could select it as your main residence. Then, when you sell this more valuable property, you will be protecting the bigger gain from tax demands. You should make your choice within two years of getting married, and it can be back-dated to the wedding day.

That's the good news. The bad news is that if you don't make a choice before your second wedding anniversary, the inspector of taxes will make one for you. The inspector, therefore, may pick the Devon house, even though it is worth less than when you bought it, and despite the fact that your London flat has doubled in value.

Once this has happened you are stuck with the decision until you buy, sell, or rent another residence. Any of these moves will give you another opportunity to make your own choice on the matter.

Capital gains tax is a complicated area. But there are a few tips that can help:

When you get married, don't forget to choose a property as your main residence.

Once you have decided, write and tell your inspector of taxes.

Do this within two years of getting married.

If a property has ever been your main residence, you will pay no tax on the gain relating to the last three years of ownership. This payment is calculated on an average basis, so if you have owned a property for 10 years, and it has risen in value by £100,000, the last three years' gain is £30,000.

Once you have made your selection of main residence, you are allowed to change it - so you could swap back and forwards between your properties to try to shelter most of your gains.

Of course, if you had stayed single, you would not have been obliged to pay any tax at all. It may be a small comfort to know that when you die, your spouse can inherit your wealth without paying any death duties. Perhaps that is what is really meant by "till death us do part".

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