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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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I have purchased a second property with the intention of totally

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I have purchased a second property with the intention of totally refurbishing it to use as my permanent home when completed. I will then sell my current house. If the refurbishment takes longer than 18 months hence my current home not be sold will I be liable for any capital gains tax? If so is there any way of minimising that tax liability?
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your question.Private residence relief is available for all the period the property is your main/only residence.More information on what periods are covered for private residence relief and covered in HMRC helpsheet HS283 herehttps://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-reliefexamples -If for up to a period of 12 months you do not occupy your new home when you acquire it because you are not able to sell your old home, or you need to carry out refurbishment, you can treat up to the first 12 months as if the house had been your only or main residence in that period.If you move out of the one property to another to make the second property your main residence, the final 18 months of ownership always qualify for relief provided the firat property was your main residence at some point during period of ownership.Lets say it takes 36 months for refurbishment to complete, but you have stayed in the present house for all the time as your main residence before moving into the new home, the whole period is covered by private residence relief as afr as the first house is concerned. As you would not have made the second house your main residence within 12 months of purchasing it, you would have some period that would not be covered by private residence relief when you come to selling the second house (your main residence once the other property is sold).a period of upto 12/18 months after the 18 months period would most probably be covered by capital gains annual allowance and minimise your CGT payable if any. 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 1 year ago.
Ok thanks for your response which I think I understand.My main concern is that the refurbishment will take approx 20 months before it is ready to move into.
The property was purchased for 235,000 with refurb costs of about 80,000. However the refurbished house will have an approx market value of 450,000 (a profit of 135,000). It was my intention to then move out of the refurbished home after about a year. If I understand you correctly that would mean I will have a CGT liability against that 135,000.
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply..Here is a practical solution..If you live in, as your home, 2 or more houses, you can only have 1 main residence at a time for Private Residence Relief. You can nominate which residence is to be treated as your main residence for any period. Your nomination must be made within 2 years of the date you first have a particular combination of residences. Second homeYou should opt to make the second home your main residence for CGT purposes from date of purchase in accordance with HMRC guidelines HS283 Private Residence Relief (2015) - see example 3 herehttps://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief First homeAt this point first home ceases to be your main residence. You think refurbishment make take 20 months. I first 18 months of this could be covered for additional relief as final 18 months of ownership.You are left with say 2-6 months that are not covered. this period is going to be a very small fraction of your total period of ownership and as I have stated in earlier posting the gain for this period would most probably be covered by gain annual allowance.You would have utilised the final 18 months relief effectively. I hope this is helpful and answers your question.If there are no more issues, I will appreciate if you would kindly rate my service/accept the service I have provided before you leave the site, to ensure I get credited for it by Just Answer.
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