CGT on former PRincipal Primary Residence

[Fat hippo]

I've got a flat that I bought in 2006 and lived in until September 2012 at ehich point I moved into my new home. from October 2012 the flat has been let.

I notice in the Autumn Statement the CGT grace period is being reduced from 3 years to 18 months as of 6 April 2014.

I'm looking to sell the flat in the spring next year when my tenant is looking to move out but I just want to understand how the 18 months will affect me and how the grace period is applied.
Am I right in thinking that it is effective for sales after 6 April and then they will apply 18 months backdated from that period? Or is it saying for when you make the election to transfer PPR to another property after 6 April?

I suspect it is the former but this seems harsh for people like me whi tried to sell during 2010 to 2012 and couldn't fet a buyer and are now trapped into paying CGT.
Also, I appreciate CGT is pro-rata'd but is this done on complete years or can you do it on months?

[Eric Mc]

CGT rules changes have a habit of catching people out due to timing. A similar thing happened back in 2008 with the abolition of "Indexation" that year.

If sold after 5 April 2014, then you will be able to add 18 months onto your period of residence when carrying out the computation - rather than 36 months.

Don't forget, you also deduct your personal CGT allowance from the resultant gain. This is currently £10,900 - so if you made a gain of £20,000, you would be taxed on £9,100. If the flat was jointly owned, everything is split on two and each individual can apply their own CGT allowance of £10,900.

Edited by Eric Mc on Wednesday 11th December 09:56

[sumo69]

The proposed wording to change the law isn't available yet but I would envisage that this would effect any sales that are subject to CGT from 6 April 2014, so that means if contracts are exchanged on or after that date.

The 18 months will be backdated from the date contracts are exchanged.

As well as the exempt amount, if the property was let you would be able to claim a lettings exemption which can be worth up to £40k so I don't think you need loose sleep over it!

David

[pacoryan]

So assuming it won't sell until April at the earliest if you add 18 months to October 2012 you will have a couple of months' gain.

Nice timing, GLWS!!!

[Fat hippo]

Thanks Eric and David for the replies.

I have to agree that it appears to be a rather sneaky change to CGT and can see a lot of people being caught out.

As the gains are quite sizeable and I have only negligible CGT losses to offset I will need to consider bringing forward the sale date.

Is it the exchange of contracts or completion date that needs to be before 6 april?
It seems that this is ambiguous but could buy me a little more time if it can be worked on the exchange date

[pacoryan]

OP I'm confused, the gains are sizable? What date are you taking your gain from? You don't have to use the gain made while it was your PPR, so the gains should be negligible if you can add 18 months on to Sept 2012 before taking a base value?

[Fat hippo]

pacoryan said:

OP I'm confused, the gains are sizable? What date are you taking your gain from? You don't have to use the gain made while it was your PPR, so the gains should be negligible if you can add 18 months on to Sept 2012 before taking a base value?

The gain is sizeable because i'm taking it from date of purchase to the current value/ date of sale.
The capital gain is then apportioned to the period I lived there plus the 18 month grace period (assuming sale is after 5 April) divided by total period of ownership.

As a side note, I bought it quite cheap as the previous owners were quite desperate to move out and it was a bit tired. I've done a fair bit of refurbishment (during the period I lived there so presumably can't claim this against CGT) and the value now is quite favourable due to its refurbished condition and the good rental yield for the area.

[Eric Mc]

You CAN claim the expenditure you paid out to refurbish the property.

In CGT lingo this is referred to as "Enhancement Expenditure". What you do is add these costs on to the original purchase cost of the property. That gives you a revised "base cost" for the computation of the gain. Once you have arrived at the gain, you then apply your time apportionment calculation based on DAYS of ownership plus the additional 36 or 18 month period - whichever is applicable.

Of course, for any valid claims for "Enhancement Expenditure" you should have documentary evidence of those costs on hand in case HMRC asks you to verify the expenditure.

[Fat hippo]

Excellent.
Thanks Eric

[sumo69]

Exchange of contracts is the relevant date for CGT, not physical completion.

Was the property not let when you moved out? If so,I very much doubt you will have any sizeable gain!

If you want me to do a quick calculation, PM me.

David

[pacoryan]

Fat hippo said:

pacoryan said:

OP I'm confused, the gains are sizable? What date are you taking your gain from? You don't have to use the gain made while it was your PPR, so the gains should be negligible if you can add 18 months on to Sept 2012 before taking a base value?

The gain is sizeable because i'm taking it from date of purchase to the current value/ date of sale.
The capital gain is then apportioned to the period I lived there plus the 18 month grace period (assuming sale is after 5 April) divided by total period of ownership.

As a side note, I bought it quite cheap as the previous owners were quite desperate to move out and it was a bit tired. I've done a fair bit of refurbishment (during the period I lived there so presumably can't claim this against CGT) and the value now is quite favourable due to its refurbished condition and the good rental yield for the area.

Thanks for clarifying, I was/am confused because if the absence period is since October 2012 and at least the final 18 months are ring-fenced, assuming you get a spring sale I would only expect a couple of months to be relevant, saying that I accept that a couple of months apportioned over not many years is a bigger proportion than in most situations.

It is certainly a sneaky move.

[rfisher]

I'm even more confused.

So, I thought that cgt worked like this;

You buy a house in 2000.

It is your primary residence until 2010.

You then buy another house and rent the first one out from 2010.

Until April 2014 (when the 18 months rule comes in) you can exempt the last 3 years rental period from cgt if you sell.

You can also exempt the 10 years you lived there from cgt so you only become liable for cgt after 13 years (2023) until April 2014 when it becomes 11.5 years or 2021.

Wrong?

[Eric Mc]

That's essentially correct. The ACTUAL period the house was your main residence is always exempted from CGT.

[rfisher]

Eric Mc said:

That's essentially correct. The ACTUAL period the house was your main residence is always exempted from CGT.

So the op has until 2019 before he would be charged cgt?

So why is he worried about selling next year?

[Eric Mc]

He won't have the full three year additional element after 5 April 2014 - as far as we know.