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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25358
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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Hello Would like this answered by a property expert please. I

Resolved Question:

Hello

Would like this answered by a property expert please.

I have a rental property that used to be my primary residence. It has been rented out for the last four years.

How long would it have to be my primary residence again for, to avoid Capital Gains tax when sold? Anything else I should be aware of relating to a potential sale and tax liability?

I have also applied for a lease extension that I would like reviewed. Is that something you can do?

Many thanks
Submitted: 2 years ago.
Category: Law
Expert:  Joshua replied 2 years ago.

Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

may I ask when you are due to retake occupation please?

Customer:

Hi

Customer:

Don't know at the moment. Was just considering future options.

Customer:

do you have specific experience with property law/tax advise?

Customer:

thanks

Joshua :

Thank you. Yes approximately 10 years of experience. May I continue?

Customer:

please do

Joshua :

the starting point is that the revenue allow you to claim the last three years prior to your moving back in to the property as CGT exempt years. So as an example if you were to move back in today, HMRC would allow you to discount the last three years prior to that date of gain. THis is about to change in April and reduced to 2 years prior.

Joshua :

In terms of practicalities if you wish to move the pole there is provision for you to require this to be moved so far as it is reasonably possible on the basis of a full indemnity as to costs. In plain English, the electric company have to move it if possible but can charge you for the work of moving it. You will need to obtain a quote from the utility company to find out how much they anticipate it will cost. You can challenge any figures you believe are over the top. in addition, some providers allow external qualified contractors to be used in order to carry out the work and you may ask the electric transporter to confirm whether they allow external contractors and if so, you can consider obtaining quotes from qualified companies for comparison

Joshua :

My apologies pleae disregard the last post. It was not meant for this thread...

Joshua :

So you you can discount presently three and as of April the last two years preceding the point you move back into the property in terms of any gain for capital gains purposes. In addition purely for the sake of completeness because you rented out the property you previously lived in you can also apply a further relief known as private lettings relief. The maximum amount of Letting Relief you can apply is the lower of:
£40,000


 


the amount of Private Residence Relief due or


 


the amount of gain you've made on the let part of the property

Joshua :

on top of this, you have your annual allowance of £10,900 which you can apply to any gain made. Accordingly based upon what you say, unless your property has made stellar increases in value, the combination of the above reliefs and allowances should allow you to avoid any CGT on the property gain on the basis you intend to move back into the property in the relatively near future

Customer:

I though if a property is a primary residence, you don't pay any CGT whatsoever? For instance if I moved back in May 2014, how long does this need to be my primary residence before I sell to avoid all CGT?

Joshua :

You are correct however you cannot claim PPR for any period you are renting the property out save as above - namely the prior 3 or 2 years after you move back in.

Customer:

what you are mentioning assn't my question.Original question is solely about the time it needs to be my primary residence before selling, in order to avoid all capital gains.

Joshua :

I think it may be helpful if we work through an example.

Customer:

"If I moved back in May 2014, how long does this need to be my primary residence before I sell to avoid all CGT?"

Customer:

ok, maybe I am missing something

Joshua :

When did you buy the property and when did you rent out roughly?

Joshua :

How much did you buy for and how much do you think it is worth now?

Customer:

bought it 16 years ago. been rented for last four years. bought for 140, now about 500K-520K

Joshua :

Thanks. OK so lets take the current value at £500K for simplicity and we will ignore deductables such as legal fees and estate agents costs you can apply:

Joshua :

Gain is £360,000 / 16 years of gain = yearly gain of £22,500

Joshua :

You can discount 12 of the 16 years of gain because you lived there for 12 years. If you move back in to the property before sale you can presently also deduct the three years prior to that which gives you a total period of PPR relief of 15 of the 16 years.

Joshua :

Accordingly you are only dealing with one year of gain at £22,500. To this you can apply private lettings relief to the full £22,500 because you lived in the property before renting it which gives you a total gain for CGT of £0.

Joshua :

is there anything above I can clarify for you?

Customer:

It was also rented out for about two years perhaps 8 or so years ago. would that also be included.

Customer:

you mention about moving back into the property to take advantage of the last two three years to maximise the years. how long do I have to be resident for?

Joshua :

That is another period which you cannot claim PPR relief for so you may have to add another 2 years of gain to the above example being a further £45,000 of gain to deal with. So in the above example you are looking at a potential gain of £67500 from which you can discount £40K of private lettings relief and your annulal allowance of £10,900 leaving a gain for CGT of £16,600.

Joshua :

You can also deduct allowables such as acquisition costs, costs of any improvement you carried out and sale costs to further reduce the gain.

Joshua :

there is no minimum period that is required in order to be resident before you sell the property in order to claim PPR relief for the preceding 3 years. what is required is that you genuinely move into the property and treat it as your primary residence for a period before sale. to demonstrate this, you would potentially need to be prepared to show bills being sent to the property in your name rather than to a different property.

Joshua :

Is there anything else i can help you with?

Customer:

you've answered the question, thanks.

Joshua :

A pleasure. if I can assist any further please do not hesitate to revert to me

Joshua :

If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with please reply back to me though

Joshua, Lawyer
Category: Law
Satisfied Customers: 25358
Experience: LL.B (Hons), Higher Prof. Dip. Law & Practice
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