Money help desk: Can my wife cut her council tax as I live abroad?

Published on Saturday 2 August 2008 15:37

I'M 52, married, with two grown-up daughters. For the last 10 years I have worked for the Foreign Office as a contractor. I live and work abroad and, as such, have 'No Tax' status with the Inland Revenue, which means I can only be in the UK for a maximum of 92 days per year and typically only manage 50 days. My wife lives in the family home in Edinburgh and visits me when she can.

Recently, we contacted Edinburgh council to get a 25% reduction 'Single Person Occupancy' on the council tax. The council refused, arguing that they assumed "that I would at some point in the future return to the marital home".

An English colleague in identical circumstances obtained a reduction. How can the council make a decision based on what they think I might do in the future?

Secondly, in 2004, when my youngest daughter was at university in Edinburgh, my wife and I purchased a flat for her. The flat remains in her name and since then I have paid off the mortgage in full. My daughter is now working and has bought her own flat. I now wish to sell the other flat.

a. If my daughter were to sell the flat while it is still in her name would she be liable for capital gains tax (CGT)?

b. Can we simply transfer the flat into my name? If yes, would this incur stamp duty?

c. Given that I have No Tax status, my understanding is that if the flat is in my name, I am not liable for CGT. Is this correct?

SB

Valerie Smart, director at PricewaterhouseCoopers LLP, writes:

1. FOR Scottish council tax purposes, "resident" means an individual who has their sole or main residence in the dwelling.

As "sole or main residence" is not defined in the legislation it is necessary to consider what the courts have decided it means. For example, a merchant seaman's sole or main residence was held to be his house in Bradford on the basis that: it was where his home was; it was his "settled or usual abode" which he left only when the requirements of his occupation compelled him to do so; it was where his wife and family lived; and he had no security of tenure on his ship. In a separate case called Ward v Kingston-upon-Hull City Council Mr Ward spent only six to nine weeks in the UK and his wife was considering joining him in Saudi Arabia. The High Court held that Mr Ward had greater security of tenure at his dwelling in the UK, and on this basis Mr Ward and his wife had their sole or main residence in the UK.

From these two examples it can be seen that there is an assumption about the future return to the marital home. This could only be challenged if you can justify that your Scottish house is not your main residence.

2. At face value your daughter is the owner of the flat and is liable for CGT on its sale. It is very likely that some or all of the gain will be exempt from tax if the flat was her principal private residence while she was at university, but the fact that she has bought a new flat complicates this and it will be necessary to look critically at the dates of ownership of both properties and when she has lived there to decide how much relief is due. If she acquired the new flat within the last two years, she may still be in time to elect which of the two properties is her main residence for this purpose, but otherwise it will be a question of fact. In any event she will be able to claim relief for the proportion of the gain relating to the last three years of ownership.

Transferring the property into your name will not exempt the gain if your daughter is the true owner, as the transfer will be deemed to take place at market value of the flat, crystallising the same gain as if she had sold it. If no money changes hands there would not be any stamp duty payable but if you paid off the mortgage you would need to be careful that the transfer was not deemed to be in return for you taking on or paying all the debt owed, as this incurs a stamp duty charge.

If you are not resident in the UK, you are not liable to CGT.