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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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This question is about capital gains tax for myself and my

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This question is about capital gains tax for myself and my wife

In Sept 2005 we bought for cash (325K) and moved into house #1 which was our home until May 2010

In May 2010 we moved into house #2 (with a mortgage) and rented out house #1 (valued then at 550K/600K) which has been let ever since. It has now been valued at between 650K and 800K - depends who we asked.

House #2 now needs significant work (underpinning) and we will have to move out for 6 or 9 or 12 months (don't know exactly yet).

One option is to forgo the rent on house #1 and move back there. My question is this. If we move back to house #1 and declare that to be our principal residence for the period

1) does that somehow reset the clock for capital gains such that henceforth capital gains will be calculated on the increase in the value of the house from next year (say 800K) until we sell it sometime in the future

OR 2) if we move back in will our new period of residency just be added to the first period of residency?
Example - if we sell in 5 years time , say 2019 that means we had it for 14 years. From that 14 years we subtract 4.5 years we lived there plus maybe .5 years (second residency if we move back) plus 1.5 years (final relief period) = 6.5 years so we pay capital gains of Profit * (14 - 6.5) / 14 minus some letting relief , all divided between the 2 of us (I'll be 75 , my wife 71 if that's a consideration).

I'm a bit confused.

You might refer to the HMRC helpsheet HS283 as part of this answer.

As you will read in HS283, when you calculate the gain on the disposal of a property, it is treated as having accrued evenly over the entire period of ownership. The value at the time you move out or let a property is irrelevant.

An election for a property to be treated as your main residence has to be made within two years of acquiring another. If you haven't done that, the your main residence for any period will be based on the facts.

In answer to your direct questions:

1 House 1 ceased to be your main home when you moved out unless you made an election for it to continue to be treated as such within two years of your acquiring house 2. As of now, if you sold house 1, you would qualify for an exemption from CGT for the gain covered by the period that you lived in it and for the last 36 months of ownership (last 18 months for disposals after 5 April 2014). That would cover all but about 8 months of worth of the gain. Letting relief would probably cover the rest of the gain. The longer you hold on to house 1, the greater the propotion of the gain that will be subject to CGT, though the way house prices move will impact on that.

2 Your new period of residency will be added to the previous period. It could be argued that house 2 continues to be your main home as you have only moved out due to the structural work which needs doing. However, your mathematical logic for house 1 makes sense. Letting relief is worth up to £40,000 per part owner.

I hope this helps but let me know if you have any further questions.
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Customer: replied 4 years ago.

Thanks for answer - I'm having a bit of a prob with the account at the mo - waiting for JustAnswer support to come back and fix things - then I'll wrap up this Q/A