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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My wife and I bought the house next door seven years ago and

Resolved Question:

My wife and I bought the house next door seven years ago and converted it into two unfurnished self contained flats, we are now considering selling the ground floor flat and are wondering about the tax implications, can you tell us if we allowed family ( rent free ) to live in our house for six months to a year and we moved into the flat for this period before selling would this then be classed as our main home and tax free at sale, we would in this case then move back into our house and sell that at a later date, hoping obviously to avoid CGT on this property also. howard.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

You only get exemption from CGT for that part of a gain covered by the period that you lived in a property and for any part of the last 36 months of ownership where you didn't. If the flat has been let, then each part owner will also be entitled to letting relief which will be the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 36 months of ownership of the property excluding overlaps and

3 that part of the letting period gain not covered by the last 36 months of ownership.

For disposals after 5 April 2014, the last 36 month exemption will be reduced an exemption for the last 18 months of ownership.

If you do as you have suggested and live in the property for a year, the tax office may still questions your motives for moving into it. If they consider that you have moved into the flat simply to avoid CGT, they may refuse any relief at all. Some so called experts say it is easy to live in a property for just a few months to get the last 3 years of ownership as an exemption but it isn't. HMRC have won several recent tribunal cases.

Take a look at HS283 for more information on the main residence and CGT.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

Can you tell me when the tax is payable, would it be on completion of sale or on my tax return, and whom calculates how much is payable.


Howard

Expert:  TonyTax replied 3 years ago.
You would report the gain in your tax return. Any CGT due would be payable on 31 January following the end of the tax year in which the property was sold.

If you want the tax office to calculate the tax, you need to submit your tax return to the tax office by 31 October after the end of the tax year.
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