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taxadvisor.uk
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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My partner has a flat (main residence) that she purchased 18

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My partner has a flat (main residence) that she purchased 18 months ago for £210k which is now worth £270k. we are about to purchase another property together and convert the flat to a buy to let mortgage.
As we understand it the CGT is paid on the sell price less the purchase price and any allowances - the question we have is does the purchase price count as £210k or does it count as £270k?
If it is at £210k, what is therefore stopping us (apart from the cost of the stamp duty / solicitors) of her selling the flat to me one day and then me selling it back to her the following day and using the purchase price of £270k?
Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
The purchase price is £210k, the original cost, plus improvement costs and costs associated with buying and selling for CGT purposes.There is nothing stopping your partner selling the property to you for £270k as there will be no CGT payable. The gain would be covered by private residence relief as it was her main residence. That being the case there is no need to sell it at £210k and buy it back at £270k.More information on private residence relief can be found here (hs283)http://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief Unless you make this property as your main residence, you would have a chargeable gain whereas her chargeable gain is nil. 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.
Customer: replied 2 years ago.
Hi
In terms of "that being the case there is no need to sell it at £210k and buy it back at £270k" will that full amount (60k) be covered by the PRR?
Thanks
Mark
Expert:  taxadvisor.uk replied 2 years ago.
Thanks for your reply.Provided the property was used as main residence by your partner, the whole gain would be covered by PRR and no CGT payable.I hope this is helpful and answers your question.If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it by Just Answer.
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Expert:  taxadvisor.uk replied 2 years ago.
I thank you for accepting my answer.
Best wishes
Customer: replied 2 years ago.
Hi
Sorry if i'm asking dumb questions but as you will appreciate the financial implications are huge is we get this wrong.We know that if my partner sells the house whilst it is her primary residence there is no CGT.The question is - she bought the flat for £210k and the flat is now worth £270. If she KEEPS the flat and adds me to the mortgage and therefore starts a new joint BTL mortgage with me as a 50% owner at an understood "current value" by the Bank of £270k does her portion ( as a continuous owner) of subsequent CGT ( say in two years time) start at £210k or £270k?.
I am assuming that as i am a "new" owner my CGT must start at £135 (50% of £270k)?In the referenced Gov.uk provided it looks like the last 18 months is exempt CGT..I have no idea what that means in 2 years time or in particular the current £60k gain?So what we need to know from is how do we jointly avoid CGT for the £210 to £270k ( ie. £60k Capital Gains whilst it has been Lisas primary residence) .if we sell in two years time?Thanks
Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.

If you are added to the mortgage as 50% owner then she has effectively sold 50% share using the cost base of (210/2) £105k with a gain being (135k-105k)£30k.

In due course, for CGT purposes the cost base applicable would be £105k for her and £135k for you.

The 18 month exemption applies when you sell a property that has been your main residence at some point during the period of ownership. If you were to sell the flat in 2 years time and you have moved out of it into the other property then it is likely Lisa will not pay any CGT on her share of the gain as she would get PRR, final 18 months of ownership and letting relief.
As far as your share of the gain is concerned it would be based on your cost base of £135k.

You have avoided CGT on £30k immediately as it is her main residence and the remaining gain of £30k would most likely be covered by PRR, final 18 months and letting relief.

I hope this is helpful.