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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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if I sell my property which I let, how long have I got to live

Resolved Question:

if I sell my property which I let, how long have I got to live in it so that I don't have

to pay capital gains tax?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

That would depend entirely on the facts and figures of your case. Please let me have the following information:

1 The month and year you bought the property and what it cost?

2 The period it was your main home (from month and year to month and year).

3 The period it was let (from month and year to month and year).

4 The value of the property now.

5 Are you the sole owner of the property?
Customer: replied 2 years ago.

1. July 2011 £171,000


2. from Dec 2013


3.August 2011 to Dec 2013


4. £250,000


5. yes

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.

Hi again.

SALE (EXCHANGE OF CONTRACTS) BY 5 APRIL 2014

If you sell the property by 5 April 2014 and make a gain of £79,000, there should be no CGT to pay. This is because it has been your main residence at some point during your ownership of it and where that is the case, you will be given the last 36 months of ownership as an exempt period. By April 2014, you will have owned the property for less than three years.

There is a risk that the tax office will claim that your motive for moving into the property was simply to avoid tax and not to make the property your home. That is difficult to do but the circumstances behind your moving in would need to be taken into account. However, this is all probably academic as you are unlikely to put the property up for sale, find a buyer and exchange contracts to sell it by 5 April 2014.

SALE (EXCHANGE OF CONTRACTS) AFTER 5 APRIL 2014

The exemption for the last 36 months of ownership is being reduced to an exemption for the last 18 months of ownership with effect from 6 April 2014. So, if you exchange contracts to sell on 6 April 2014, the figures will be as follows:

The gain for the period the property was your main home will be exempt from CGT as will the gain for the last 18 months of ownership, excluding overlaps. That accounts for £41,824 (£79,000 / 34 x 18). The remaining gain of £37,176 is split as to £34,853 to that part of the letting period gain not covered by the last 18 months of ownership (£79,000 / 34 x 15) and £2,323 to the vacant month when you first bought the property (£79,000 / 34 x 1).

As the property was both your main home and it was let you are entitled to letting relief which is 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 which is £41,824 and

3 the letting period gain of £34,853.

Letting relief of £34,853 will reduce the remaining gain of £37,176 to £2,232 and the annual CGT exemption of £11,000 will cover the balance so there would be no CGT to pay.

If I were you, I'd be looking to live in the property for at least a year to hopefully avoid a challenge by HMRC. If you did that and the property increased in value in the meantime, you would need to revisit the figures. If you lived there until April 2015 and made a gain of £79,000, you would probably end up with a taxable gain of £6,174.

The problem with not selling quickly is that you will be given the last 18 months as an exempt period in any event (subject to challenge) so you would need to live there until around April 2016 to avoid CGT by a combination of main residence and letting relief. That is based on a gain of £79,000 so if the gain is larger, there may be some CGT to pay, though you do have the annual CGT exemption to use.

There is more information on the main residence and CGT in the HMRC helpsheet HS283.

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

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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