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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15847
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I want to put more in if I am paying £33! We own three BTLs

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I want to put more in if I am paying £33! We own three BTL's and our own residence. The tenants in a property we wish to sell are willing to swap homes for a year - the properties are mirror images of each other and we will make a £150K profit on the sale of the rental which we purchased in 2008. It is a residential mortgage with permission to rent - we did not move in as immediately after purchase my mother bevcame ill and could not look after herself. How long to we realistically need to live in this property as our PPR to avoid capital gains? In HRMC seems very vague on the subject. Does Letting Relief have any bearing on anything?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

If you let me have the following information, I'll do some calculations:

1 When did you buy the property you wish to sell (month and year) and what did it cost to buy?

2 Have you ever lived in it? If so, when did you move in and out (month and year you moved in, month and year you moved out)?

3 When was the property first let (month and year)? Has it been let continuously since?

4 What is the property worth now?
Customer: replied 3 years ago.

April 2008 £240k £3.5k solictor cost


No we were going to but family crisis prevented


 


Aoril 2008 yes


 


We have been offered £400K.

Expert:  TonyTax replied 3 years ago.

Thanks.

Is the property jointly owned?

Customer: replied 3 years ago.

yes my husband and I

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 3 years ago.

sorry just looked it up and it is April 2009

Expert:  TonyTax replied 3 years ago.

I had finished the calculations and had almost finished drafting my answer but no matter. So, can you confirm that the buy to let property was bought in April 2009, it has been let from April 2009 to date and you want to move into it before selling it.

Customer: replied 3 years ago.

yes

Expert:  TonyTax replied 3 years ago.
Thanks.
Expert:  TonyTax replied 3 years ago.

Hi again.

The following figures are for each of you as I have divided the gain in two.

If you sell the property after 5 April 2014 without it having been your main home at some point, you will each have a capital gain of £78,250 (£400,000 - £243,500 / 2). The first £11,000 of your respective gains will be exempt so you will each be left with a net taxable gain of £67,250.

If you sell the property on 5 April 2015, having lived in it for 12 months, you should each qualify for exemption from CGT for 18 months worth of the gain. That will account for £19,295 (£78,250 / 73 months x 18 months). The remaining gain of £58,955 is that part of the letting period gain which is not covered by the last 18 months of ownership, of which you will have occupied the property for 12 (£78,250 / 73 x 55).

As the property will have been both your main home and let you will 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 18 months of ownership of the property, excluding overlaps, which will be £19,295 and

3 that part of the letting period gain not covered by the last 18 months of ownership of the property which will be £58,955.

Letting relief of £19,295 will reduce the remaining gain from £58,955 to £39,660 and the annual CGT exemption of £11,000 will reduce it further to leave you with a net taxable gain of £28,660.

There are two rates of CGT, 18% and 28%. The rate or combination of rates you will pay will be dependent on the level of your income in the tax year of disposal of the property. Assuming you sell the property in the 2014/15 tax year, the following will apply:

1 If your income in 2014/15 including the taxable gain is £41,865 or less then all the taxable gain will be taxed at 18%.

2 If your income in 2014/15 excluding the taxable gain is more than £41,865 then all the taxable gain will be taxed at 28%.

3 If your income in 2014/15 excluding the taxable gain is less than £41,865 but more than £41,865 when you include the taxable gain then part of it will be taxed at 18% and part at 28%.

HMRC have recently been winning tax tribunal cases where they have challenged the taxpayer's claim for the main residence exemption as a result of a short period of occupation of the property which they say was only to reduce the taxable gain and not as a result of an intention to make the property that property their home so you need to be aware of that.

As you will have seen from my calculations, it is not simply a matter of saying a property is your main home and getting the main residence exemption. It depends entirely on the facts and figures. You are currently given the last 36 months of ownership of a property as a CGT exempt period where it has at some point been your
main home. That is being reduced to the last 18 months for disposals of property after 5 April 2014. By moving into the property for a year or so, you should be able to reduce the taxable gain by about £38,250 for each of yourself and your husband.

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

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

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15847
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Hi TonyTax


We have spent the weekend digesting your response and have found ourselves in a completely different place ie debating whether it is worth the disruption of moving for a savng of 18K instead of the 34K we originally envisaged. We think we will probably wait and see if the budget changes anything - if not just bite the bullet and pay the straight CGT. The only extra question which I know is entirely a matter of opinion but with your experience is probably a more informed opinion than most - do you think there will be a house price crash in the next couple of years? Best wishes Stevie

Expert:  TonyTax replied 3 years ago.

I doubt there will be any surprises in the budget around CGT and property. Most of the announcements are made in the Autumn statement.

As for house prices, I have no idea whether there will be a crash or not. We seem to be obsessed with property in the UK and you could argue that the government's policy of helping buyers has added to recent house price inflation and they have just announced that it will continue for the life of the next Parliament which will run until 2020.

Customer: replied 3 years ago.

thanks S

Expert:  TonyTax replied 3 years ago.

Thanks and good luck.

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