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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5112
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My wife and I own a house and a flat in joint names, we live

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My wife and I own a house and a flat in joint names, we live in the house and rent out the flat to our son who is about to move away, one of us is going to move into the flat soon, how long would one have to live in the flat before it could be sold without incurring any Capital Gains Tax
Hello and welcome to the site. Thank you for your question.

In order to be able to claim private residence relief and be exempt from capital gains tax on sale of property, you have to satisfy two conditions.

For the whole time that you have owned the property -
- it's been your only home or main residence
- you have used it as your home and nothing else.

It is clear from your statement that the flat is a second home. Provided you have both lived in the flat as your main residence at some point then you would be able to claim private residence relief for the period you lived in the flat as your main residence against potential capital gains tax on sale of flat.

You can only have one main residence at any one point. One of you moving into the flat on its own would not qualify you for private residence relief.

If you wish to mitigate your CGT liability then you would both have to consider moving from the house to the flat and making the flat your main residence. This move would enable you to claim PRR for the period it is your main residence.

More information on how private residence relief works can be found on HMRC helpsheet HS283 here

I hope this is helpful and answers your question.

Customer: replied 3 years ago.

I cannot understand why if we separated and one of us moved into the flat one of us would be liable for C.G.T would it make a difference if we changed the land registry and had one place each

Ronald, thank you for your reply.

You could not claim exemption from CGT retrospectively.

There are special rules pertaining to CGT that come into play where there is a separation or a divorce.

I would like you to read the information under the heading "transfers in the tax year of separation" and "transfers in the tax year after you've separated" here

I hope this is helpful.

Customer: replied 3 years ago.

I have read the relevant articles but still cannot find a definitive answer to my questions, I took out a £150,000 loan on our house on an interest only loan for 10 years which is due to end in 2019. to buy the flat for my son who is subject to the proceeds of crime act and could not put it in his name. He has been paying the interest loan since it started. He now wants to move but as the flat is in our names we would be liable for C.G.T. which we do not feel that we should be liable for. The flat is now valued at some £400.000 but after the loan is repaid he would have paid over £200,00 plus £30,000 for the lease extension and several thousands more for the renovation of the flat although all of this is in our names, would we be able to offset these costs against C.G.T.

Ronald, you took a loan to buy a second property. As this is not your main residence, all gain is chargeable to CGT.

Any expenditure of a capital nature incurred by you to improve the property would be regarded as enhancement costs and available for offset against the gain of the property. The same would apply to payment for lease extension.

Repayment of loan is not a cost and therefore you would not be able to reduce your gain because of it. In summary your gain will be calculated as follows:

Selling price
Buying price
Costs of improvements (capital nature only and not to include repairs and maintenance)
Payment for lease extension
Costs associated with buying and selling the property (e.g. stamp duty, agent's fee etc.)

This will give you chargeable gain
You take two lots of gains allowance against this gain (2 x 11,000)
The balance is subject to CGT at 18%, 28% or a combination of both depending on your total income including the gain in the tax year of sale.

I hope this is helpful.
Customer: replied 3 years ago.

Thanks for that, please just clarify the 11,000 is that £11,000 each for my wife and I after our own personal tax allowance of £10,000 each as we are pensioners or does our pension count against the £11,000

Ronald, thanks for your reply.

The gains allowance is against capital gain for CGT purposes..
This is in addition to the personal allowance you get for income tax purposes.

Your pension does not count against the gains allowance.

I hope this is helpful.

If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get credited for it. and other Tax Specialists are ready to help you
I thank you for accepting my answer.

Best wishes.