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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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We (my partner and I - we are unmarried) have been living in our current house 1

Resolved Question:

We (my partner and I - we are unmarried) have been living in our current house for about 10 years and it is our PPR. Some years ago we applied for and received planning permission to build a house (planning permission for a separate dwelling) in the side garden of our London home. This build is coming to an end and we want to minimise our CGT exposure. We do not need to sell either house, could live in the new house or rent either and live in the other.
Specifically, when does the new dwelling become a legal new dwelling? Can we rent it as an annex to our home and sub divide title later when we might wish to sell? Should we take steps for one of us to nominate this dwelling as our PPR first?
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

Please clarify for me..

Is the new build property a stand alone building?
Is your current property in both names?

Many thanks
Customer: replied 2 years ago.

Is the new build property a stand alone building?

Our existing building is an Edwardian end-of-terrace. The new building adjoins ours and has a basement whose wall now support the dividing wall between the two houses. The new house has its own front and rear entrance as well as utility connections. The new house does not stand alone in the grounds of our existing house but is adjoined to it on one side and is now the end house in the terrace.

Is your current property in both names?

Yes, the current property is in both names.

Regards

Rodney

Expert:  taxadvisor.uk replied 2 years ago.
Rodney, thank you for your reply.

[q]

Specifically, when does the new dwelling become a legal new dwelling?

[a]

Once it is registered in your name at the Land Registry and you have a title deed number.

[q]

Can we rent it as an annex to our home and sub divide title later when we might wish to sell?

[a]

As I understand the property is a standalone unit i.e. could be sold as a separate unit and not an integral part of the main property, notwithstanding the fact you have sharing walls? If not, the part that is not used as your main residence would be chargeable to CGT on sale.

[q]

Should we take steps for one of us to nominate this dwelling as our PPR first?
[a]

As you are not married, you can both have a property each and nominate it as your main residence to avail private residence relief on any gain made when property is sold. You are not bound by conditions applicable to married couples. It would be a good idea to nominate the new dwelling as main residence of one of you.

As the current property is in joint names then you can only claim one property as a main residence at any one point during period of ownership.

You should nominate which property is your main residence within 2 years of acquiring another property. There is nothing stopping you letting the new property initially and then moving into it and making it your main residence for a period before you sell it. You would also be entitled to relief for the final 18 months as the property would have qualified for main residence.

Provided a property has been your main residence at some point during the period of ownership, you would be able to claim letting relief up to a maximum of £40k per owner for the period the property is let.

More information on private residence relief is covered in HMRC help sheet HS283 here

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

taxadvisor.uk and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thank you. Two clarifications if I may:

First, I want to confirm that our likely route works. That is: not to apply for separate title on the new build house, rent it for a few years or so (essentially as an annex to our house), apply then for legal title and then move into the new house for a period and establish it as our PPR (or the PPR of one of us).

CGT will be based on the value of the new build compared to the value of the entire property pro-rata'd on a time basis i.e. period rented out compared with total period of ownership?

Have I understood correctly that this is how it would work?

Second, you say that "As the current property is in joint names then you can only claim one property as a main residence at any one point during period of ownership" but also "As you are not married, you can both have a property each and nominate it as your main residence." Can you clarify this as the two statements seem at variance with each other?

Thanks again.

Expert:  taxadvisor.uk replied 2 years ago.

Rodney, thank you for your reply.

[q]

First, I want to confirm that our likely route works. That is: not to apply for separate title on the new build house, rent it for a few years or so (essentially as an annex to our house), apply then for legal title and then move into the new house for a period and establish it as our PPR (or the PPR of one of us).

CGT will be based on the value of the new build compared to the value of the entire property pro-rata'd on a time basis i.e. period rented out compared with total period of ownership?

Have I understood correctly that this is how it would work?

[a]

You appear to have understood how cgt would be calculated once the annex becomes a separate property.

[q]

Second, you say that "As the current property is in joint names then you can only claim one property as a main residence at any one point during period of ownership" but also "As you are not married, you can both have a property each and nominate it as your main residence." Can you clarify this as the two statements seem at variance with each other?

[a]

This is covered in HS283 after example 2 and 3

If the property is in joint names, then in order to avail PRR you both have to be living in that property whether you are married or not. As a married couple, you can have only one main residence between you.

As unmarried couple, albeit living together, you can each have one main residence.

I hope this is clearer.

Expert:  taxadvisor.uk replied 2 years ago.
I thank you for accepting my answer.

Best wishes.