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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15916
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I bought a house in 1950 containing four apartments until selling

Customer Question

I bought a house in 1950 containing four apartments until selling three of the four leaseholds to pay business losses, around 1990, but continued to live in one of them - until self-building a modern detached 3-storey house in the garden and moving in to it during 2010, keeping the original apartment furnished and using it as extra space.
Five years later ie today, the stairs of the new house have become too steep to climb for my 87 year old legs, and too narrow to install a stair lift. We have modernised my original apartment, moved back into it full time and have let the house from June 8.
The old apartment is now our prime residence until my much younger wife retires and we down-size further to monetise assets and move to a less expensive area in the West Country.
Can we expect the IR to respect that the whole combined property of house and apartment lived in continuously, on the same contiguous piece of land but separated by a brick wall, has jointly been our main residence all the while and qualifies for PRR
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

The house and the flat are two distinct properties and so I very much doubt that HMRC will accept that they can be treated as one main residence regardless of the fact that you used the flat as extra space but I wouldn't want to discourage you from attempting to make a claim for main residence relief. The fact that the house has been let doesn't help. Assuming you didn't make an election for one if the properties to be treated as your main home, the the matter of which one has been will be based on the facts.

As far as the flat is concerned, that ceased to be your main home in 2010. You will be given main residence relief for the period from 1 April 1982 to the month in 2010 that you moved into the house and for the last 18 months of ownership whether you are living there or not. In addition, the value of the property as at 31 March 1982 will be the "cost" of the property for Capital Gains Tax purposes. I'm sure that will be much higher than the original purchase price.

As for the house, you will qualify for main residence relief from April 2010 to June 2015 and for the last 18 months of ownership whether you are living there or not. In addition, you will be entitled to letting relief which will be the lesser of:

1 £40,000,

2 the gain covered by the period of occupation by you and that covered by the last 18 months of ownership and

3 the gain for that part of the letting period not covered by the last 18 months of ownership.

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

I hope this helps but let me know if you have any further questions.
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Customer: replied 2 years ago.

My questions need clarification and mainly concern main residence status for the flat elected since June 1 - the date I moved in.

It seems as though one gets the 18month freedom from tax after leaving a main residence at the same time as one is enjoying tax relief in the new main residence. Is that correct/

.I am not terribly concerned as to where I stand on the house. which I elected as my main residence for four years or so.until moving out on May 31 2015. It is now let. I assume I will be liable for tax on all rental profit as well as any of its value rising after I moved out on May 31. The house cannot now be sold until the end of the tenancy in May 2017 .

I have notified HMRC of my change in main residence to the flat since June 1. My main question (in three parts) now is:

I intend to sell the flat asap. Do I get any benefit from the 18 month rule after moving out of the flat in 2011.

Will I only get immediate relief on value rises in the flat from june 1 until a sale is completed say by December 2015?

Will I have to qualify for main residence relief for the flat by remaining in it for a particular minimum of time say three months?

The flat was next door and fairly empty -used just for light private office work during a leisurely executed makeover lasting three years. We have raised its value by spending say £250,000 to raise value by £600,000, Will we be liable for tax on the difference £350,000?

I presume we can set off all the direct costs. Can I also take a retrospective accumulated reasonable salary for the project management of it all?.

Expert:  TonyTax replied 2 years ago.

It seems as though one gets the 18month freedom from tax after leaving a main residence at the same time as one is enjoying tax relief in the new main residence. Is that correct?

You can get last 18 month relief whilst living in another property. The relief was originally for 24 months and was introduced in the late 1980s property downturn to allow homeowners to move to a new home and to have a period of grace to sell a property that was not able to be sold at the same time as their new property was bought.

I am not terribly concerned as to where I stand on the house. which I elected as my main residence for four years or so.until moving out on May 31 2015. It is now let. I assume I will be liable for tax on all rental profit as well as any of its value rising after I moved out on May 31. The house cannot now be sold until the end of the tenancy in May 2017.


You will have to apy tax on the surplus of rentla income over deductible expenses. Gains on the disposal of property are treated as having accrued on a straight line basis. The gain is then divided between the taxable and tax free parts.

I intend to sell the flat asap. Do I get any benefit from the 18 month rule after moving out of the flat in 2011.

Any property that has been your main residence at some point is eligible for last 18 months of ownership relief even if it is let.

Will I only get immediate relief on value rises in the flat from june 1 until a sale is completed say by December 2015?


As I said above, the value when a property is let is irrelevant to the gain calculation. The gain is calculated on a straight line basis.

Will I have to qualify for main residence relief for the flat by remaining in it for a particular minimum of time say three months?

Since it has been your main home in the past, you should get main residence relief for all the time you lived in it plus a maximum of the last 18 months of ownership when you aren't living there.

The flat was next door and fairly empty-used just for light private office work during a leisurely executed makeover lasting three years. We have raised its value by spending say £250,000 to raise value by £600,000, Will we be liable for tax on the difference £350,000?


If the flat was partially used for a business purpose, then the private residence relief may be restricted. If the intention was to refurbish to make a profit, HMRC may try to tax it as property development though three years is a long time for a property development. It's a small risk. All the profit is taken into account in calculating the taxable and non taxable parts of the gain.

I presume we can set off all the direct costs. Can I also take a retrospective accumulated reasonable salary for the project management of it all?

You can claim the costs of materials and labour but not for your own labour. You cannot claim a salary against a capital gain I'm afraid.

Customer: replied 2 years ago.

You have tried hard to be helpful tho7ugh it is much more difficult to be unambiguous on line than during interactive free speech.

You can claim the costs of materials and labour but not for your own labour. You cannot claim a salary against a capital gain I'm afraid.

Noted but what about a salary for managing the rented property.

There is a great deal of running about and bringing in craftsmen to satisfy the tenant. The Estate agent wanted to charge 14% of the agreed rent to take on the responsibility?

Expert:  TonyTax replied 2 years ago.
There's no point as you will pay tax on it yourself assuming your income is above the personal allowance threshold. HMRC may ask you for an analysis of what you have done so bear that in mind.

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