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Capital Gains issues arising from the sale of two houses. My

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Capital Gains issues arising from the sale of two houses.
My wife and I are joint owners of two properties, 10 Paxton Close, Olney, Bucks, and***** Glasgow.
We purchased Paxton Close in June 1988 as our family home at a cost of £125,000 and in 1996 extended it at a cost of approximately £40,000. In May 2008 we considered selling it following my move to a new job in Scotland and had it valued it at £435,000 by two local estate agents. However, because of the economic downturn at that time and the uncertain employment and housing prospects for two of our sons who were still living at the house we decided to retain it as our family home. This remains the current position and one of our sons continues to live there. We continue to use the house regularly. It has never been let and we have always been responsible for council tax and utility bills.
In August 2008 having taken up my new job, we purchased the house at Torridon Avenue for £490,000. Although my wife and I are now retired we continue to live in Glasgow as we each have very elderly parents who are now dependent on us.
As we look to the future we are considering downsizing and selling both houses. The plan would be to sell Paxton Close first and use the proceeds to buy a new property more in keeping with our future needs followed quickly by the sale of Torridon Avenue to release capital.
The issue we need advice on is the capital gains liabilities we are likely to incur. Our preference would be to have Paxton Close accepted as our primary residence throughout and therefore not subject to capital gains tax. We would then pay capital gains tax on the sale of Torridon Avenue.
Our questions are – Given the length of time we have owned and used Paxton Close as our primary residence can we simply say that we have always considered it to be our primary residence and therefore be exempt for capital gains purposes. If not is it likely HMRC would consider the 2008 valuation of £435,000 as a starting value above which capital gains would be calculated?
By way of further information I am a higher rate tax payer and my wife a basic rate tax payer. We also know that costs incurred in buying and selling the properties can be used to offset capital gains.
Any advice on how we might be best able to minimise any capital gains would be gratefully appreciated.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Can you give me an idea of how you have used the two properties since you bought the house in Glasgow please. Which one have you spent more time in? Did you make an election for one of the properties to be trated as your main home within two years of acquiring the second?
Customer: replied 1 year ago.

Hi

We have spent the greater part of our time in Glasgow since purchasing the house there. It is also the address from which I have been making my tax returns. No we didn't make an election on a main property within two years. Would our situation change if we moved back to the house in Bucks?

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer. It will take a while.
Expert:  TonyTax replied 1 year ago.

Hi again.

Take a look at HS283 here for information on the main home and CGT.

First off, the value of the Bucks property when you moved out is irrelevant to the calculation of any gain and its not possible to simply turn back the clock by moving back into the Bucks property and avoid CGT completely without living there for a long time. The gain is simply calculated on a straight line basis and is treated as having accrued evenly over the entire period of ownership. You did not make an election so the question of which is your main home will be based on the facts.

From what you have told, the main home from about August 2008 will be the Glasgow one. You spend most of your time there, you worked in Glasgow, your parents and in-laws are there and you use that address for post.

Assuming that the Bucks property was your main home until August 2008 or thereabouts, the gain for the period from June 1988 to August 2008 as a proportion of the whole gain will be exempt from CGT as will the gain for the last 18 months of ownership, again as a proportion of the whole gain. That covers about 21.5 years of the gain. The balance of the gain (about 5.5 years worth) will be taxable. Each of you and your wife will qualify for an exemption from CGT for the first £11,100 of gains they make in a tax year.

Had the Bucks property been let to your sons, you may have qualified for letting relief which would have reduced the taxable gain.

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

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15841
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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