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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have owned a rental flat years. Now, I am selling

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I have owned a rental flat for 20 years. Now, I am selling my main home and considering moving into the rental flat.
If I do so, how long would I have to live in it for it to qualify as a main home and therefore avoid capital gains tax?
Hi. I'm afraid that it's not as simple as moving into a property and thereby avoiding CGT completely. Whether you can avoid CGT and to what extent depends on the length of time that you have owned the property, how long it has been your main home, how long it has been let, what it cost to buy and what you it is sold for. Take a look at Example 9 in HS283 here. The gain for the period a property is your main home will be exempt from CGT as will the gain for the last 18 months of ownership excluding overlaps if the property has been your main home at some point. You will get some letting relief which is worth up to £40,000 off the gain per part owner if the property has been your main home at some point. If you only move into the property for a short while in order to achieve relief for the last 18 months of ownership and letting relief, HMRC may deny you the reliefs on the basis that it was not your intention to make the property your home, merely to reduce your CGT liability. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
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Customer: replied 1 year ago.
I purchased the short leasehold flat in 1997 for £108,070.40 including fees. Refurbishment costs and leasehold enfranchisement brought the costs up to £184.539.40. Current value of flat is around £700,000. It has always been used as a rental investment apart from three months when I lived in it myself.I should like to sell it but CGT would be hefty, plus at aged 77 there are likely to be IHT costs - i.e. two lots of tax!So, if, having sold my current main residence (under offer at the moment) I moved in to the flat - how long would I have to live in it before it would qualify as my home for tax purposes. Since I would make the move for tax reasons, not for personal choice, I need to know if this is practical in which case I do not buy my permanent new home until the flat can be deemed my main/only residence and CGT is avoided.
Can you tell me what the problem with my answer is please. Its not fair to rate a technically correct answer negatively. You wouldn't like it and nor do I. 36 years experience is worth something. If you can let me have the facts and figures of your property, perhaps I can give you an idea of your potential CGT exposure. It doesn't need a phone call.
Let me do some calulations. Can you tell m which month in 1997 you bought the property please.
Customer: replied 1 year ago.
June 1997
thankyou for your extra help.
Thanks. I'll get back to you with some figures. It will take a while si please ber with me.
Customer: replied 1 year ago.
I hoped it might be more straightforward - i.e. either a one year or two year period ??
If you sell the property now for £700,000 having paid £108,070 for it and spent £76,930 or so on it, you will make a gain of £515,000. I've rounded the total cost up to £185,000. You can also deduct the costs of purchase and sale (legal fees, stamp duty, survey fees, selling agent fees).Total period of ownership to May 2016: 228 monthsPeriod of owner occupation: 3 monthsPeriod of letting: 225 monthsExempt gain: £47,434 (£515,000 / 228 x 21 (3 months occupation by you + last 18 months of ownership)Letting period gain: £467,566 (£515,000 / 228 x 207 months (228 - 3 months occupation by you - last 18 months of ownership)Gross Non-Exempt Gain: £467,566Letting Relief: £40,000 (lesser of £40,000, £47,434 and £467,566)Annual CGT Exemption: £11,100Net Taxable Gain: £416,466 (£467,566 - £40,000 - £11,100)The CGT cannot be more than 28% of the next taxable gain (£116,610.48). However, depending on your income level in 2016/17, some of the gain may be charged at 18%. The maximum amount taxable at 18% can be no more than £32,000 and that figure will reduce by £1 for every £1 of income over £11,000 that you have in 2016/17. Refer to HS283 information on the main residence and CGT, example 9 in particular. You get relief from CGT for the time that you live in a property as a proportion of the whole gain plus letting relief up to a maximum of £40,000. Even if you lived in it for 19 years on top of the 19 years that you have owned it, you will still be left with a taxable gain of around £240,000 and that's assuming the value doesn't change from £700,000. Living in it for one or two years will hardly make a dent in the taxable gain I'm afraid.I hope this helps but let me know if you have any further questions.
I'd be grateful if you would reconsider your raring of my answer. You can ask any follow up questions that you may have.
Customer: replied 1 year ago.
i thought there was a law that if I lived in the flat for 2 years, owning no other property, therefore it was my main residence, that there would be no cgt when it was sold. that point of tax law was what I needed to find out. You are telling me that even though it would be my main/only property I am still liable for the fact that it has been a rental property for 20 years - even though I have paid tax on all my earnings over that period. Therefore no point at all in moving into the flat!. Thank you for your comprehensive calculations. much appreciated. regards.
There is no such law I'm afraid. If there was, nobody would pay CGT on residential property. You get the reliefs that I explained in my answer based on the facts and figures you gave me and pay CGT on any part of the gain not covered. Would you mind re-rating my answer before you leave the site please.
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