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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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We have 2 houses, we have owned both house: one for 40 years

Resolved Question:

We have 2 houses, we have owned both house: one for 40 years and the other for 17 years, I live in the house we have owned for 17 years and have registered there to vote, my wife lives in the house which we have owned for 40 years. We want to sell the house we have owned for 17 years as we are running out of funds (retirement). We bought this house for £300,000, (1997) we have been offered £750,000, will we have to pay capital gains?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

Can you tell me if you are actually separated and, if so, when you separated please. Have you lived in the property you have owned for the whole 17 year period?Has either of the properties been let?

Customer: replied 3 years ago.

No we have not separated, we are happily married, I spend time maintaining both properties and we spend all of our holidays there,


I registered to live there about 3 years ago. Neither properties has ever been let.


Many thanks


Ken

Customer: replied 3 years ago.

I have replied to your request, do you need anymore information?


 


Thanks,


Ken

Expert:  TonyTax replied 3 years ago.
Thanks.

Since you are not separated, can you expand on your situation a little please. You say you spend time maintaining both properties. Did you only actually move into the property you have owned for 17 years 3 years ago? Are the properties far apart? Are you saying that you spend your holidays in the property you have owned for 17 years?
Customer: replied 3 years ago.

The property which we have owned for 17 years is in Dorset, the property we have owned 40 years is in Surrey. We decided to spend more time there as my only daughter moved nearby in Dorset 9 years ago and help with their 2 children, now she works, we spend our holidays in the Dorset house. We spend our time: in 2 weeks in Surrey and 2 weeks in Dorset, my wife does not want to move away!


 


Many thanks,


Ken

Expert:  TonyTax replied 3 years ago.
Thanks. That helps clarify matters.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 3 years ago.
Hi again.

The problem you have is that, unless you jointly elected for one of the two properties that you own to be treated as your main residence within two years of having acquired the second, the decision as to which is your main residence is based on the facts and, to a certain extent it is out of your hands and in the hands of the tax office. A married couple who are living together (marriage not broken down) cannot have more than one main residence between them at any one time.

Clearly, up to the point that you acquired the second property, the Surrey property was your main home. If you sell the Dorset property, unless you can convince the tax office that the Dorset property was your main home from 17 years ago which I doubt because they will probably say it was a holiday home given your use of it you will have to pay CGT on the gain. It may be that they will accept that the Dorset property was your main home from when your daughter moved close by, assuming you had no work tie to Surrey at that time.

If you did get the tax office to agree that the Dorset property was your main home from a certain point in time, that means that the Surrey property ceased to be your main home from that point and if you sold, that, part of the gain on that would be taxable. If you intend to stay in the Surrey property for the rest of your lives, the tax issue becomes academic.

Take a look here for more information on CGT and the main home.

I hope this helps but let me now if you have any further questions.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Thank you for your help, if we exchanged our house with my daughter's and exchanged deeds would we pay capital gains?


 


Thanks,


Ken

Expert:  TonyTax replied 3 years ago.

I'm afraid that an exchange of properties would be disposals for CGT purposes at the open market value since you and your daughter are connected for tax purposes. Whether there would be a taxable gain on each of you would depend on eligibility for claims for main residence relief.

If your daughter's house has been her main home for the whole period of ownership, then her gain would be covered by main residence relief and so there would be no CGT to pay.

A tax neutral swap can only be done with jointly owned assets as you can read here.

Customer: replied 3 years ago.

Thank you, you have been very quick and helpful, looks like we will have to cough up some money if we sell, maybe we might rent to get some money for maintenance of the Dorset residence?


 


Many thanks,


Ken Harvey

Expert:  TonyTax replied 3 years ago.
If you let the property, you will need to dislcose the income and expenses and pay tax on any surplus. See the notes here on the criteria for completing tax returns and, in particular, the notes on rental income.