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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4200
Experience:  FCCA FCMA CGMA ACIS
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I have a large house which is easily split into two. I would

Customer Question

I have a large house which is easily split into two. I would like to sell the bigger section and retain the smaller. Would I have to pay capital gains tax on the part I sold.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

At the point of split there is but one item of landed property. If this has been your sole or main domestic residence and you have lived there then on split you would be entitled to Private Residence Relief (PRR) which is 100% of any gain reducing your capital gain to nil. You should ensure that you have an up to date valuation of each property post split.

You now have 2 houses. Within 2 years of the split you must elect which dwelling house you will define as your sole or main domestic residence for Capital Gains Tax (CGT) purposes. The elected one will continue to enjoy PRR thus eliminating any CGT liability to nil. For the other one sale will attract CGT at 18% or 28% on any gain depending on your income including the gain in the year of sale. You do have an Annual Exempt Allowance of 11K.

I presume that you intend to do the split and sale in the same time frame, thus you should not have to worry too much about CGT, but with house prices rising by 500 quid per month in some parts of the UK, one never knows!
Customer: replied 3 years ago.
It is my intention to live in the smaller portion to be split and sell the other portion. Is there a minimum time that I would need to live in the elected part without incurring CGT if I decided to sell it.
Also, four years ago I sold a chalet and the land on which it was built and which was situated in my garden. I had let this for holidays as well as using it for family and friends. My accountant said I must pay CGT on this but the amount paid was probably less than the amount I had received in rentals over the time I let. Should I have had to do so and if not can I reclaim the tax.
Expert:  bigduckontax replied 3 years ago.

The general consensus amongst experts on this site is that you should be in occupation for at least a year to avoid assessment.

 

As for the chalet upon which you paid CGT, which was almost certainly correct as it was not your sole or main domestic residence, you should have received Lettings Relief (LR) up to 40K to offset any gain for CGT purposes. However if as a holiday letting property it was available for letting for over 210 days in the year and actually let for over 195 the situation becomes incredibly complicated bringing Entrepreneur's Relief into play to reduce the rate of CGT to 10%.

 

I do hope LR was claimed at the time. If LR was not claimed then there is another CGT can of worms to be opened and argued through a suspicious HMRC!

 

Perhaps you are beginning to see just what a horrible tax CGT can be, likely to spring up and bite you in a most expensive way at the most unexpected moments.

bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 3 years ago.
Thank you for your support.