Capital gains tax if you sell an annex
Discussion
A question for the learned!
I’ve just started renting an a new build side extension from the landlord who lives in the original house. They are renting it out to make some extra money through retirement. To be honest, I’m loving the house so much I’d love to buy it and will ask them if they’d consider doing so.
One thing that I was wondering, was, and my memory may be hazy, is it better for them to sell sooner if they do as the PRR would be tapered less and they’d pay less tax?
Situation, numbers approximate;
-300sq m house, I’m in 120sq m side extension.
-I’ve been here 1 month
-I think they’ve lived here 23 years.
-extension is part of the old house and a bit on the side, building work for circa 2 years, but they lived in property throughout.
-my property has separate council tax and so on but was only signed off by building regs a month ago.
Does anyone know what the tax situation would be if they sold now, vs over time? My gut says an early sale would still receive much of the PRR, and so that’s an argument for them to sell quickly not slowly, but I may be wide of the mark - does anyone know the rules that would apply on a sale here?
Thank you in advance for any steer!
I’ve just started renting an a new build side extension from the landlord who lives in the original house. They are renting it out to make some extra money through retirement. To be honest, I’m loving the house so much I’d love to buy it and will ask them if they’d consider doing so.
One thing that I was wondering, was, and my memory may be hazy, is it better for them to sell sooner if they do as the PRR would be tapered less and they’d pay less tax?
Situation, numbers approximate;
-300sq m house, I’m in 120sq m side extension.
-I’ve been here 1 month
-I think they’ve lived here 23 years.
-extension is part of the old house and a bit on the side, building work for circa 2 years, but they lived in property throughout.
-my property has separate council tax and so on but was only signed off by building regs a month ago.
Does anyone know what the tax situation would be if they sold now, vs over time? My gut says an early sale would still receive much of the PRR, and so that’s an argument for them to sell quickly not slowly, but I may be wide of the mark - does anyone know the rules that would apply on a sale here?
Thank you in advance for any steer!
Private residence relief
https://www.gov.uk/government/publications/private...
Sorry, Eric! Ie I was hoping they could extract some value at near 0% cgt on the proportion of the property they sell, but there is probably some taper as it’s been let and not their primary residence anymore, this is the nub of me question!
https://www.gov.uk/government/publications/private...
Sorry, Eric! Ie I was hoping they could extract some value at near 0% cgt on the proportion of the property they sell, but there is probably some taper as it’s been let and not their primary residence anymore, this is the nub of me question!
Private residence relief
https://www.gov.uk/government/publications/private...
Sorry, Eric! Ie I was hoping they could extract some value at near 0% cgt on the proportion of the property they sell, but there is probably some taper as it’s been let and not their primary residence anymore, this is the nub of me question!
https://www.gov.uk/government/publications/private...
Sorry, Eric! Ie I was hoping they could extract some value at near 0% cgt on the proportion of the property they sell, but there is probably some taper as it’s been let and not their primary residence anymore, this is the nub of me question!
I think you are using the wrong terminology. "Taper Relief" was a specific relief given in Capital Gains Tax to take into account inflation. It was abolished a number of years ago.
What you seem to be referring to is "Main Residence Relief" which still exists and is meant to ensure that the sale of your home is exempted from Capital Gains Tax.
However, there are some limits to this.
If the property was once your home but is not any more, then the Main Residence Relief is time apportioned based on the number of years it WAS your main residence (plus an additional nine months) .
Also, if part of the property was NEVER part of the main residence - such as an extension used for business purposes or perhaps an annexe used to generate rental income, then that part of the property might also be excluded from Main Residence Relief.
What you seem to be referring to is "Main Residence Relief" which still exists and is meant to ensure that the sale of your home is exempted from Capital Gains Tax.
However, there are some limits to this.
If the property was once your home but is not any more, then the Main Residence Relief is time apportioned based on the number of years it WAS your main residence (plus an additional nine months) .
Also, if part of the property was NEVER part of the main residence - such as an extension used for business purposes or perhaps an annexe used to generate rental income, then that part of the property might also be excluded from Main Residence Relief.
It can get a bit tricky regarding annexes. If the annexe was used to house a family member and commercial rent was not charged, then it would be seen as an integral part of the main residence and would be exempted from Capital Gains Tax. If the annexe was used to generate income i.e. such as renting out to 3rd party tenants - or used as an office or other form of business premises - such as a workshop - then it would NOT form part of the main residence and the sale proceeds from the sale of the premises would need to be apportioned between the main residence part of the property and the non-main residence part of the property.
This would normally be done on a "floor area" basis.
Don't forget, the apportioned proceeds relating to the annexe, which would be subject to Capital Gains Tax, would have the cost of construction of the annexe/extension offset against them.
Finally, under the current regime, Capital Gains in respect of residential properties have to be submitted to HMRC electronically within 60 days of the sale of the property. The Capital Gains Tax arising (if any) also has to be paid within 60 days.
This would normally be done on a "floor area" basis.
Don't forget, the apportioned proceeds relating to the annexe, which would be subject to Capital Gains Tax, would have the cost of construction of the annexe/extension offset against them.
Finally, under the current regime, Capital Gains in respect of residential properties have to be submitted to HMRC electronically within 60 days of the sale of the property. The Capital Gains Tax arising (if any) also has to be paid within 60 days.
Interesting point re cost of building offset / that helps.
I suspect the calc would be about 66% of the area existing house, so main res relief (save reduction of %time I’ve rented) and then 33% at full cgt & your point re less building costs.
An interesting optimisation problem fin terms of peak offer window!
I suspect the calc would be about 66% of the area existing house, so main res relief (save reduction of %time I’ve rented) and then 33% at full cgt & your point re less building costs.
An interesting optimisation problem fin terms of peak offer window!
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