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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 (husband and I) live in a flat worth £950k (Flat A) We

Resolved Question:

We (husband and I) live in a flat worth £950k (Flat A)
We bought a second flat in July 2011 (Flat B) for £950,000. This flat is worth £1.5 million now and is let on an AST.
We are considering selling Flat B or A in order to buy flat C - worth around £1.8million.
Flat A is straighforward as we have always lived in it. It has a mortgage of £490,000 - thus can raise £510k from selling.
Flat B has been on an AST since September 2011.
If we moved into Flat B for a short time (1 week?) could we benefit from the 18 months CGT relief when we sell it? Would we also benefit from the £40,000 lettings relief?
Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Let me take a look at this and I'll get back to you with an answer.
Expert:  TonyTax replied 2 years ago.
Hi again.

Take a look at the notes here.

No matter what a tax author may say in a tax tips book and I have read such statements as "move in for a week", HMRC will challenge any claim for main residence relief for the last 18 months of ownership of a property if you live in it for a week on the basis that you did not intend to make it your home but to avoid some of the Capital Gains Tax liability which you will have if you sell it. Any such claim is judged more on the quality of the occupation as opposed to the length of the occupation.

The fact that you appear to have decided to buy a new permanent home doesn't help your case I'm afraid. HMRC have been winning case after case in the last few years and they will go on doing so. The last 36 months relief was reduced to 18 months a year ago because of abuse by taxpayers. The relief which started out at 24 months was originally introduced to allow taxpayers time to sell a property after they had moved to another property during the late 80s property recession. It was never intended to be used by the buy to let market to shield capital gains and it was the MP's "flipping" which threw light on the abuse, though for a different reason, and made HMRC take a hard line.

I advise people to move into a property for at least a year in order to have a good chance of claiming relief for the last 18 months of ownership. I wouldn't try to discourage you from trying to claim the last 18 months relief but you can expect HMRC to show an interest if you move in for just a week. Given that the property has been let, letting relief would apply where a main residence relief claim was successful.

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

The notes show (mostly) that the claimants we unsuccessful mainly because they had failed to obtain any records to show they were living in the property they were claiming relief for. In addition some were actively marketing the property they were claiming relief for. Surprised

I'm not surprised HMRC ruled against these cases.

Expert:  TonyTax replied 2 years ago.
As I said I wouldn't want to put off trying but I'm as certain as I can be that HMRC would challenge your claim. Not many people know that if the main reason for buying a property is to make a profit, even if it is lived in, then a claim for main residence relief can be challenged in some circumstances.

I'm sorry my answer isn't what you wanted to read but it is based on my 36 years working in tax and I'm not here to tell people what they want to hear. That would be unprofessional.
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