Reducing / avoiding CGT on buy to let property
Discussion
Hello. Did some research and spent a while on HMRC's site but I am too thick to understand how it works so I am hoping that someone has gone through this already.
I am looking at buying a house locally as a buy-to-let first (I have a long term tenant). My plan is to sell my main house in say 8 years time using its current CGT relief status. I can't work out if I can avoid/reduce my CGT exposure on this second home and if it helps if it becomes my main residence for a few years (it'd would be fine for us as the kids will have - hopefully - left by then).
Any help would be appreciated.
I am looking at buying a house locally as a buy-to-let first (I have a long term tenant). My plan is to sell my main house in say 8 years time using its current CGT relief status. I can't work out if I can avoid/reduce my CGT exposure on this second home and if it helps if it becomes my main residence for a few years (it'd would be fine for us as the kids will have - hopefully - left by then).
Any help would be appreciated.
Eric Mc said:
The is no time limit for determining when a property is your main residence. It either is or isn't.
Indeed, there are circumstances when you can elect to have a property classified as your maion residence without ever having lived in it.
Ask any MP.
Sorry to hijack thread. I have an flat that i want to sell next year. Property currently rented and in my partners sole name. We will soon transfer it into my name also to reduce CGT. Indeed, there are circumstances when you can elect to have a property classified as your maion residence without ever having lived in it.
Ask any MP.
Question- if one of use in theory moved into property could we then sell it as main residence. Say my partner moved back into her flat and then sold it.....
For a property to be eligible as a main residence, there must be definitive proof that it is being used, or has been used, at some point in time, as a main residence.
If someone owns two properties, the property the person is actually living in is the assumed main residence. If they want the OTHER property to be their main residence instead, they must either, permanently move into the other property - or move to the other prioperty with a firm intemntion that it is their main residence.
In other words, they should be able to show that the property has become their main residence. Merely moving in for a period may not be enough.
You would need to do a number of things to establish main residency status which could include -
moving in
changing contact address to the new property
disposing of the former main residence
renting out the former main residence
making an election to have the second residence treated as a Main Residence
If someone owns two properties, the property the person is actually living in is the assumed main residence. If they want the OTHER property to be their main residence instead, they must either, permanently move into the other property - or move to the other prioperty with a firm intemntion that it is their main residence.
In other words, they should be able to show that the property has become their main residence. Merely moving in for a period may not be enough.
You would need to do a number of things to establish main residency status which could include -
moving in
changing contact address to the new property
disposing of the former main residence
renting out the former main residence
making an election to have the second residence treated as a Main Residence
I have owned and lived in house 1 for 10 years and I am currently exempt of CGT when I sell it.
This is my plan:
2012 : buy property 2 and rent it out straight away
2020 : give notice to the tenant, sell property 1 and move into property 2 which will become my main residence
My question is : will I get CGT exemption on property 2 when I sell it ? And if so, how long do I need to live in it to achieve that ?
What I will not do is pretend I live somewhere and not actually live there. No way I'd lie to the taxman.
This is my plan:
2012 : buy property 2 and rent it out straight away
2020 : give notice to the tenant, sell property 1 and move into property 2 which will become my main residence
My question is : will I get CGT exemption on property 2 when I sell it ? And if so, how long do I need to live in it to achieve that ?
What I will not do is pretend I live somewhere and not actually live there. No way I'd lie to the taxman.
nickfrog said:
I have owned and lived in house 1 for 10 years and I am currently exempt of CGT when I sell it.
This is my plan:
2012 : buy property 2 and rent it out straight away
2020 : give notice to the tenant, sell property 1 and move into property 2 which will become my main residence
My question is : will I get CGT exemption on property 2 when I sell it ? And if so, how long do I need to live in it to achieve that ?
What I will not do is pretend I live somewhere and not actually live there. No way I'd lie to the taxman.
The moment you actually move into Property 2 is the moment it becomes your main residence.This is my plan:
2012 : buy property 2 and rent it out straight away
2020 : give notice to the tenant, sell property 1 and move into property 2 which will become my main residence
My question is : will I get CGT exemption on property 2 when I sell it ? And if so, how long do I need to live in it to achieve that ?
What I will not do is pretend I live somewhere and not actually live there. No way I'd lie to the taxman.
Say you bought Property 2 on 1 January 2010 . You rent it out until 31 December 2016.
You move in on 1 January 2017.
You sell it on 31 December 2020.
You owned Property 2 from 1 January 2010 until 31 December 2020 i.e 11 years exactly.
It was your main residence from 1 January 2017 until 31 December 2020 i.e. 4 years exactly.
Therefore, out of the 11 years you owned Property 2, for 4 of those years it was your main residence.
Say, on the sale of the proprty you made a gain of £100,000.
HMRC will say that you apportion the gain into two elements - the gain for the period where it was your main residence and the period when it was NOT your main residence.
The "Brucie Bonus" is that they allow you three free years to add to your main residence period. So your 4 years of main residence now become 7 years of main residence.
That means you are given 7 out of the 11 years of ownership as your main residence - leaving 4 years to be charged to Capital Gains Tax.
That means that the chargeable gain will be 4/11 x £100,000 = £36,364
Eric
I dont think your analysis is correct and you are overstating the relief.
If he is actually living there for the last 3 years anyway it won't double up - the law isn't stated that way (take a look at the HMRC Capital Gains Manual sections CG64985 and CG64990 which covers this point).
I believe it says that if it's been the PPR at sometime in its ownership then you get the last 36 months in any case, which is somewhat different.
You have also failed to mention that there is also up to a £45k lettings exemption available to reduce any gain and if the property is held jointly then BOTH people get it so that's up to 90k relief.
What I have had clients do is elect for the second property to be their PPR for 6 months which generates all the reliefs explained above. This will make a small amount of potential gain on the existing PPR chargeable, but in most cases the annual exemption of £10600 cover this.
If the OP wants any more explanation, PM me.
David
I dont think your analysis is correct and you are overstating the relief.
If he is actually living there for the last 3 years anyway it won't double up - the law isn't stated that way (take a look at the HMRC Capital Gains Manual sections CG64985 and CG64990 which covers this point).
I believe it says that if it's been the PPR at sometime in its ownership then you get the last 36 months in any case, which is somewhat different.
You have also failed to mention that there is also up to a £45k lettings exemption available to reduce any gain and if the property is held jointly then BOTH people get it so that's up to 90k relief.
What I have had clients do is elect for the second property to be their PPR for 6 months which generates all the reliefs explained above. This will make a small amount of potential gain on the existing PPR chargeable, but in most cases the annual exemption of £10600 cover this.
If the OP wants any more explanation, PM me.
David
Edited by sumo69 on Saturday 29th September 01:18
Edited by sumo69 on Saturday 29th September 01:19
Edited by sumo69 on Saturday 29th September 01:21
Gassing Station | Finance | Top of Page | What's New | My Stuff