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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My wife and I moved home in 1986 into a property which we bought

Customer Question

My wife and I moved home in 1986 into a property which we bought for £210000. In Oct 2013 we decided to move home and put the property (which we own outright) on the market for £825000. Subsequently due to Heathrow expansion plans, then flooding in the Thames valley we had no offers. By March 2014 we found our new dream home; rather than missing out on this we took the property off the market and let it to tenants from June 2014. Meanwhile we purchased our new home in May 2014, partly via a 6 year term mortgage, with the aim of selling our old home within a 2 to 6 year window.
I have recently learnt that there is an 18 month limit on owning two homes, in that when this is exceeded, sale of the second property is subject to Capital Gains Tax.
My questions are, am I correct about this 18 month limit? If so is CGT calculated from the difference between the 1986 purchase price and the selling price or between the 2013/14 market value and the selling price?
It seems to me that the latter is the fairer scenario given the circumstances in which we ended up owning two properties, but can HMRC be persuaded by this argument?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

The gain made on the sale of a property is treated as having accrued evenly over the entire period of ownership but you won't pay CGT on all the gain from the sale of the 1986 property, if any. Divide the gain in two, half for each of yourself and your wife, assuming the property has been in joint names since you bought it. Divide each half into months of ownership to arrive at the monthly gain for each of you. The following will apply to your respective shares of the gain:

The gain for the period that you lived in the property will be exempt from CGT as will the gain for the last 18 months of ownership of the property. So, if you sell it by around October/November 2015 (18 months from when you moved out to be exact), there will be no CGT to pay.

As the property will have been both your main home and let, you will each be entitled to a further deduction from the gain called letting relief and this will be the lesser of:

1 £40,000

2 the sum of the gain for the period that you lived in the property and the gain for the last 18 months of ownership and

3 that part of the letting period gain not covered by the last 18 months of ownership.

Letting relief will only be needed if you don't sell the property within 18 months of moving out of it. The first £11,100 of each of your remaining gains will be exempt from CGT assuming a sale in the 2015/16 tax year.

Take a look at HS283 for more information on the main home and CGT. Note that it mentions an exemption for the last 36 months of ownership. This was reduced to 18 months for disposals after 5 April 2014 due to abuse by property owners with several properties. The 2014/15 version of HS283 has yet to be published.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 2 years ago.
Hi again.

It's been a few days since I answered your question. Is there anything you need further clarification on?