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bigduckontax
bigduckontax, Accountant
Category: Tax
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We sold our previous main residence ( in Redhill) in March

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Hi,
We sold our previous main residence ( in Redhill) in March 2015 to relocate to the north west for work. We purchased a small flat in Manchester and put all our furniture into store, intending to find a family home after we had relocated. The aim was always to have the flat as our "second" property.
We are now purchasing a property which will be our principal private residence in cumbria. There are two areas of the property that can be used for holiday lettings to provide an additional income. Both are accessible from inside the house. One also has an external entrance that can access this flat alone. The intention is that we will move into the house and I will run the holiday lets as a small lifestyle business.
Please could you advise on any capital gains tax implications, whether we can get any relief for our mortgage interest against the holiday letting income (assuming we meet the FHL rules), if we will have to pay business rates on the part of the property let out and if, given the most recent advice, we stand a fair chance of avoiding the extra 3% stamp duty being imposed from 1st April. We will not exchange contracts before then.
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. Your new family house will be a second home as you already own a flat in Manchester [where I was born, incidentally] which currently enjoys Private Residence Relief (PRR), although you can elect to change this within two years of the acquisition of your new Cumbrian residence. Accordingly the new extra Stamp Duty Land Tax (SDLT) of 3% more will apply. You could try putting a case to the Stamp Office in Birmingham, but in my opinion you do not stand a ghost's chance of success. I would be interested to know how you feel you might avoid this impost. Running the furnished holiday lettings (FHL) as a sideline is perfectly acceptable. The appropriate proportion of the interest element of the mortgage may be set against rentals. If you make a loss in any tax year then this may not be set against any other income save FHLs. You can put your rental income direct into a pension fund providing you do not breach the 40K a tax year current contribution limit. On ultimate disposal the Capital Gains tax (CGT) on the disposal of the SHL element will be entitled to Entrepreneurs' Relief which limits the tax on the gain to a flat rate 10% instead of the usual 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. I do hope that I have been able to shed some light on the position.
Customer: replied 1 year ago.
Keith,Thanks for the response. CGT very helpful - thanks. Re stamp duty, I am looking at the 18 months concession for reinvesting in PPR I do not object to paying 3% on the equivalent of the flat, but not on our main home - we sold a 5 bed place for £460k and will be buying a 6 bed for £540k. The flat (2 bed) cost £190k. At the time, if we had been aware we would have rented, and thus avoided this entirely, however we had to move very quickly for work ( job offer at end of january, house sold a week later we offered on the flat a week after that - I was working from up here from 9th March based in holiday let until flat went through end of march) And yes flat has been PPR this year, but that was always intended as temporary. We are unfortunately a victim of unintended consequences, and I plan to at least try to argue that. Any further thoughts appreciated. That said until the budget we don't know for sure what the rules will be.Thanks againSally
Expert:  bigduckontax replied 1 year ago.
Sally, the 18 moth rule is a CGT rule not a SDLT one. the SDLT rule is slightly different viz [source Gov UK web sire]: 'If the purchaser has sold a previous main residence within 18 months before the day of the transaction and the transaction is a purchase of a new main residence, the purchaser will be considered to be replacing a main residence. Where an individual is replacing a main residence the higher rates of SDLT will not apply.' However, This is Money has the following cautionary comment: 'Anyone owning a second property that isn't their main residence and buying another, or replacing the one they don't live in, is likely to get caught up in the changes. ' You owned a property in Redhill and sold it, PRR applied. You bought a flat in Manchester and lived therein. It was your sole or main domestic residence, PRR applies. You buy a new family home in Cumbria which is a second home at the time of purchase. The Stamp Office will argue that as you are living in the Manchester flat, irrespective of your long term intentions, the Cumbrian property is a second home and the SDLT 18 month rule inapplicable. I am so sorry to have to rain on your parade. Please be so kind as to rate me before you leave the Just Answer site. As you say the budget could change everything; there is much sabre rattling in the media.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support, Sally.

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