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bigduckontax, Accountant
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Principal Private Resident Relief on sale of property

Customer Question

Principal Private Resident Relief on sale of property

Propert1:

Jan-2000: Owner buys the property for £70k. Owner lives at the property as his main residence.

Jan-2012: The property is let out

Dec-2015: The property is sold for £400k

Property2:

Jan-2004: Owner buys the property for £250k. Second residence only weekend stays.

Jan-2012 to present date: This property2 becomes the owners main residence as the property1 is let out from Jan-2012

Dec-2018: Plan to sell property 2 for estimated £600k.

Principal Private Resident Relief (PPR):

The owner did not make an election on main residence

Can the owner claim PPR on property 1? Please show calculations.

Can the owner claim PPR on property 2 when sold at future date Dec-2018? Please show calculations.

Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer and pleased to be able to help you with your question. You had two years after the purchase of property 2 to elect to which property Private Residence Relief (PRR) would apply. As this election was not made HMRC will base the Capital Gains Tax (CGT) position on the facts. In my view they will consider PRR applicable to both properties with a January 2012 switch date. Property 1, bought for 70K and sold for 400K, 330K gain. Total ownership period 180 months. Total let period 36 months less 18 as for the last 18 months you are assumed to be in residence even if this is not the case. Thus 18 / 180 10% of the gain, 33K is exposed to CGT in the 15/16 tax year. Deduct 11.1K Annual Exempt Amount (AEA) leaves 21.9K. Lettings Relief (LR) up to 40K is available to offset this depending upon the rent received. It is thus possible that there will be no CGT liability at all, but without an indication of that net rental received I am unable to the quite certain. Property 2 bought for 250K and sold for 600K, gain 350K. Total ownership period 168 months, occupation period 72 months. Thus PRR applies for say 43% of the gain say 150K. Deduct AEA, assumed to be 11.1K, but might be more by 2018 and LR of 40K leaves say 99K exposed to CGT. This will be levied at 18% or 28% or a combination of the two rates depending on the owner's income including the gain in the tax year of sale. Worst case scenario is a tax bill of just under 28K. I do hope that my reply has shed some light on your situation.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3356
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.
Customer: replied 1 year ago.

regarding property 1, over the total rental period its a net loss of £500.00. How does this impact LR.

Customer: replied 1 year ago.

please answer my follow on question

Expert:  bigduckontax replied 1 year ago.

Firstly my apologies for the delay. I am answering your question from a time zone 7 hpurs ahead of GMT and I had gone to bed!

I assume from your query over the loss that LR has extinguised the gain and left GBP 500 unused. Thst is actually not the case and LR would be utilised only so much as to reduce the gain to zero. The rest of that relief is lost.

Customer: replied 1 year ago.

ok thanks, understood.

we can close this case.

Expert:  bigduckontax replied 1 year ago.
Delighted to have been of assistance. Just to clarify LR is allowable up to 40K so if you don't need it, it isn't used or only part used.

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