Capital Losses & Gains for a Couple

S

SeamMcC

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My then girlfriend (only name on mortgage) purchased a house in late 2006 (peak of property boom). I then made the strategic mistake of marrying into negative equity It was a cosy (& also costly) house in a nice location for a while, but we quickly outgrew it as little people arrived. So we became reluctant landlords & purchased elsewhere. Today we would estimate the house to be valued at ~€100k less than the purchase price.

Through work, I’ve acquired shares as well as long-term incentives (all in my name only).

So if we were to sell the house (at considerable loss), can we leverage her capital loss against my capital gains in selling shares & executing LTIs afterwards?
 
Yes, but you need to be mindful of the fact that Principal Private Residence Relief works in reverse also. Any loss must be time apportioned to take account of the period when it was her PPR.

Capital losses are automatically shared between spouses unless they formally elect not to do so.
 
Thanks for the quick reply Gordon. My financially literacy is low - I'm still learning. I'm not sure I understand the reverse concept. Is it proportional to how long it's been rented?

So we lived there from 2006 to 2012 (say 7 years)). Then the property was rented out from 2013 to now (say 9 years). Can we only claim 9 years of 16 years as investment? Thus should we only claim 9/16 of the loss?
 
So you guys owned it for 16 years.

You lived there for 7.

For the 12 months immediately after the 7 years, it’s also deemed to be your PPR.

So 8/16, i.e. 50% of the capital loss is available.
 
Thanks Gordon. That is really helpful critical in making a decision about selling it & something we were not aware of.

I jest about it not being helpful as it makes it more complicated... after running some simple numbers, we could benefit from 52.9% (9/17 of the capital loss) if we wait till 2022 to sell. Or if we wait till 2023 (with 10/18 of the capital loss) we can benefit from 55.6%. Diminishing returns year-on-year but it may prompt us to hold on to it (reluctantly) o_O

While it is a pain to manage (just had a tenant who skipped the country with rent arrears & left the house in disrepair), we have a tracker mortgage & the above may justify holding onto it for longer.
 
I wouldn’t let that influence you at all.

It’s very rare that the tax tail should wag the commercial dog.

And in this case, remember that the cash benefit is only 33% of the loss amount.

The change of 2.7% only has a “tax cash value” of 0.891 (i.e. 33%) which is “only” €891 on a €100k loss.
 
Good point again Gordon.

I've discussed it over with my wife & we are coming to the conclusion we should sell now. Thank you so much for you insight Gordon. Really appreciate it.
 
SeamMcC said:
I jest about it not being helpful as it makes it more complicated... after running some simple numbers, we could benefit from 52.9% (9/17 of the capital loss) if we wait till 2022 to sell. Or if we wait till 2023 (with 10/18 of the capital loss) we can benefit from 55.6%. Diminishing returns year-on-year but it may prompt us to hold on to it (reluctantly) o_O
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Is it not diminishing year on year (8/16, 8/17, 8/18 - 50%, 47%. 44.4%)? The years you lived there remain the same (7+1) but your rental years are increasing

Gordon Gekko said:
I wouldn’t let that influence you at all.

It’s very rare that the tax tail should wag the commercial dog.
Click to expand...

But I agree with this sentiment, the bigger risk to the OP is both house and share prices falling so the CGT offset is not the biggest worry at all.
 
_OkGo_ said:
Is it not diminishing year on year (8/16, 8/17, 8/18 - 50%, 47%. 44.4%)? The years you lived there remain the same (7+1) but your rental years are increasing



But I agree with this sentiment, the bigger risk to the OP is both house and share prices falling so the CGT offset is not the biggest worry at all.
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No, the amount of the allowable loss is increasing just as the chargeable gain would increase in a profitable scenario.

I did have to think twice myself though.
 
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