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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My Wife and I purchased a property in the west Country near

Resolved Question:

My Wife and I purchased a property in the west Country near to where we grew up and close to where both our parents live. Although the property was in a serious state of disrepair, our intention had always been to renovate it and move into it in the near future so as to raise our children close to the grandparents.

During the renovations we have remained in our rented accommodation near London.

The renovations are now complete - having taken five months or so - but before we could decide what to do with it (i.e. move to it or short term let out) we were approached by a neighbour who offered to buy it in cash for one of their family members to move to. At no point did we intend to market the property for sale, or flip it for a quick gain.

The figures break down as follows:

Purchase price: £245,000
Renovation cost: ~£12,000
Sale offer: £325,000

Were are noted as council tax payers and residents by the local council, and had moved our bank accounts details to the new property.

I am a higher rate tax payer but my wife is currently on statutory maternity leave (and thus has a very low income for this year). Her normal income is £41,200 and so just avoiding the higher rate tax band.

The question is would we be liable for CGT on the profit made?

Would it be easy to argue that the property was our main residence? We did split our time between the two properties, myself spending considerably more time their than my wife.

As I said, there was zero intention to make money out of this purchase initially.

The property is held in both our names and we own no other properties.

Many thanks
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.

Hello and welcome to the site. Thank you for your question.

Provided you can demonstrate there was no intention to profit from the property when you bought it and that you had every good intention to move into the property supported by actions taken by you, e.g. making the property address your main residential address and registering with local council, you may have a good case to agrue it was your only property and claim private residence relief on the gain.

Please read the notes under Period of absence on Page 4 of HMRC helpsheet HS283 covering private residence relief. More information here

http://www.hmrc.gov.uk/helpsheets/hs283.pdf


You could agrue change of circumstances were the cause for not moving into the property.

As a general rule, if you buy a property and renovate it to sell without either moving into it or letting it albeit for a short period HMRC would view the transaction as a trade.. you are deemed to be property developer and not property investor and the gain is treated as profit from trade and subject to income tax and NI.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.

Thank you. The period of absence information is particularly helpful.


 


Would you advise therefore that no initial return is made to HMRC regarding this sale (as I feel we have a good case to argue), and that we should only prepare a 'defence' if HMRC were to investigate down the line?


 


Many thanks.

Expert:  taxadvisor.uk replied 3 years ago.
John, thank you for your reply.

You should make a return and complete the summary pages covering capital gain as the sale proceeds were in excess of £43,600 (2013-14 figure).
You would report chargeable gain to be nil because of private residence relief.

Please read page TRG 5 of How to fill your tax return here ...

http://www.hmrc.gov.uk/worksheets/sa150.pdf


I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

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