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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a question in relation to CGT on a 2nd property. If

Customer Question

I have a question in relation to CGT on a 2nd property.
If lets say I buy my 2nd property today for 500k, move there for a year, improve it, sell it 1 year later lets say for a profit of 100k (after expenses are deducted), and move back into my 1st property.
For the duration of this 1 year, I may rent out my 1st property for lets say 1,000 a month.
My first property was purchased for 260,000 in 2006, and is now worth 550,000.
I am in the 40% tax band.
How would CGT be calculated on the profit of the sale of 2nd property?
Can this be reduced with the help of principle private residence relief on the 2nd property, and letting relief on my 1st property, to not have to pay CGT whenever I decide to sell the 1st property which is my main residence.
I understand there were some changes since 6 April 2015, and would like to understand how this would affect it, and what would be the most efficient way of dealing with it?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Let me take a look at this and I'll get back to you.
Expert:  TonyTax replied 2 years ago.
Hi again.

From previous questions, its clear you are involved in the construction industry so you need to be careful not to be have a profit you may make on a property that you have developed or improved and even lived in assessed on you as development profits or to CGT, particularly if you make a habit of it.

On the face of it, you could claim main residence relief for a gain you may make on property 2 as you will have lived in it for the entire period of ownership and it would clearly have been your main home as property 1 will have been let for the year that you have lived in it (property 2). However, if you buy a property with the intention of making a profit from it as opposed to making it your home, any gain that you make could be assessed to Capital Gains Tax or, as I mentioned in the first paragraph above, to income tax and national insurance contributions given your involvement in the construction industry.

HMRC may have trouble proving what your intentions were but they have won cases at tax tribunals in the recent past where individuals have moved into property to get tax reliefs as opposed to making a home or have bought a property with a view to improving it and making a profit. The fact that you may move back into your first property may be inferred as part of a medium term pre-meditated plan.

Whether you would have CGT to pay on any gain you make later on when you sell your first property will be dependent on how long you owned it for, whether it is jointly owned, how long you lived there, how long it was let for and the level of gain you make. If you let it, then you will be due some letting relief.

The CGT rule changes that came into being on 6 April 2015 relate to non-UK resident individuals who own UK residential property and, assuming you are UK resident will not affect you.

I hope this helps but let me know if you have any further questions.