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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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My wife and I live in a property that consists of a house (which

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My wife and I live in a property that consists of a house (which we have lived in from 1986) 'knocked through' via a party wall to create an entrance doorway into the adjoining ground floor flat in 1997. We have occupied the combined dwelling as our family home ever since, and it is treated as a single dwelling for the purposes of community tax.
We have decided that it is now too large for us, and have obtained planning permission to 'fill in' the doorway to recreate the separate dwellings. We are still deciding whether to sell or rent out one of the properties, but will continue to live in the other.
My reading of CGT rules suggests that we should get full residence relief if we now sell either one as it has been 'part of the family home' for some years.
If, however, we decide to let one instead, I assume that we are then on the 'sliding scale' system whereby full relief for that property is tapered off until the point we sell that property.
However, we may let one out but after a few years move back into that property, selling the one we have been living in. As far as i can see we will get full relief on that sale.
Your views on the above, please.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, on of the experts on Just Answer, and pleased to be able to help you with your question. You appear to have grasped the principles of Private Residence Relief (PRR) which relieves CGT at 100%. Many people do not realise that when they sell their house they are liable to this tax as PRR relieves it at 100% and is given automatically. If you make the split as you suggest and let one or the other bit then a CGT liability will start to run from that point. This will be time proportional, in other words only the period in months let over the total ownership period also in months would be the appropriate fraction. Furthermore, for the last 18 months of ownership you are deemed to be in occupation even if this is not the case so this reduces the fraction even further. You have an Annual Exempt Amount (AEA), not cumulative, of 11.1K to offset this gain and, since you occupied the residence before renting it out, Lettings Relief (LR) up to 40K. Thus as time goes by the exposure to the tax is reduced. As you are Joint Tenants, deemed to hold 50/50, any gain is divided by two, half each thus reducing liability levels further as each of you is entitled to an AEA. CGT is levied at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. The Council Tax will have to be re-assessed as at the split and this will be done by the appropriate Agency, with devolved powers England and Wales and Scotland have different systems. In England this would be the Valuation Office Agency, part of HMRC staffed by chartered surveyors responsible for banding and business rates assessments also. I do hope that I have been able to shed some light on your conundrum.

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