Residential property CGT?
Discussion
If I have a house solely in my name which I have never let our or lived away from but buy another one with my partner before selling the 1st one, what are the CGT implications?
I know extra SDLT will be due which can be reclaimed within a time limit of selling the first one and I know that you get Private Residence Relief and get 9 months relief for the last 9 months you own the property regardless of whether you own another one or not, but what happens after that 9 months?
Does the amount of CGT kick in straight away and be as if it has always been a 2nd home, or does the private residence relief still apply but is reduced as a percentage of the time you lived away from the original property? So if Ive owned it 5 years but lived away from it for 12 months, will 9 months relief apply but have to pay CGT on whatever the gain is, reduced by the percentage that 3 months is of the total ownership period?
I think I know the answer as I had to do similar for a residential house that i did live on but latterly let out; i got relief for some of the time but not all (private residence relief reduced by the percentage of time I let it out) but im not sure if this also applies to properties that have not been let as per original example.
Thanks!
I know extra SDLT will be due which can be reclaimed within a time limit of selling the first one and I know that you get Private Residence Relief and get 9 months relief for the last 9 months you own the property regardless of whether you own another one or not, but what happens after that 9 months?
Does the amount of CGT kick in straight away and be as if it has always been a 2nd home, or does the private residence relief still apply but is reduced as a percentage of the time you lived away from the original property? So if Ive owned it 5 years but lived away from it for 12 months, will 9 months relief apply but have to pay CGT on whatever the gain is, reduced by the percentage that 3 months is of the total ownership period?
I think I know the answer as I had to do similar for a residential house that i did live on but latterly let out; i got relief for some of the time but not all (private residence relief reduced by the percentage of time I let it out) but im not sure if this also applies to properties that have not been let as per original example.
Thanks!
Thanks for your reply.
In the given example I would have lived in it for 4 years and the 12 months (5yrs ownership total) would be at the end of the ownership not part way through.
When you say letting is of no consequence; is that because its actually to do with whether you lived away from the property or not (one reason could be letting, another could be moving for work etc)?
The exact scenario is that I am buying a house jointly with my partner whilst she also owns her own home which has not yet sold. We want to buy the new one and sell the existing one afterwards and want to know the tax implications from a CGT point of view. I understand you get Private Residence Relief for the whole period you lived in the property plus 9 months on top regardless of the position (presumably to allow for situations as I have described) What I want to know is what is the tax position if we dont sell it in 9 months?
I also see that you can write to HMRC and nominate your main residence within 2 years of owning a combination of properties - would this mean that we could declare the first property as my partners main residence and take advantage of full private residence relief? There is information online which suggests you dont actually have to spend most of your time there to declare as main residence. We wouldn't be letting it and it would have some furniture in to make it look better for viewings to sell.
Thanks
In the given example I would have lived in it for 4 years and the 12 months (5yrs ownership total) would be at the end of the ownership not part way through.
When you say letting is of no consequence; is that because its actually to do with whether you lived away from the property or not (one reason could be letting, another could be moving for work etc)?
The exact scenario is that I am buying a house jointly with my partner whilst she also owns her own home which has not yet sold. We want to buy the new one and sell the existing one afterwards and want to know the tax implications from a CGT point of view. I understand you get Private Residence Relief for the whole period you lived in the property plus 9 months on top regardless of the position (presumably to allow for situations as I have described) What I want to know is what is the tax position if we dont sell it in 9 months?
I also see that you can write to HMRC and nominate your main residence within 2 years of owning a combination of properties - would this mean that we could declare the first property as my partners main residence and take advantage of full private residence relief? There is information online which suggests you dont actually have to spend most of your time there to declare as main residence. We wouldn't be letting it and it would have some furniture in to make it look better for viewings to sell.
Thanks
The best thing is to look at the HMRC website, most of the rules are not that obscure.
Other people's advice and experiences can easily be out of date.
But AIUI, if you have a house for say 6 years and it's only exempt from CGT for 5 years, then 1/6th of the gain would be assessed for CGT.
If it's jointly owned, then you can each take your CGT allowance off from your share of the gain.
All the costs of buying and selling can be added to the purchase price to reduce the gain, as can certain capital improvements, like repairing defects which were present when you bought, but not anything that would be labelled 'maintenance'.
You don't have to live in a house very much to nominate it as your primary residence at any given time, but I suspect it can't generally be your primary residence if it's let to someone else? But there are people who get a home included with their job, I think they can get primary residence relief on a home they own but don't live in?
Other people's advice and experiences can easily be out of date.
But AIUI, if you have a house for say 6 years and it's only exempt from CGT for 5 years, then 1/6th of the gain would be assessed for CGT.
If it's jointly owned, then you can each take your CGT allowance off from your share of the gain.
All the costs of buying and selling can be added to the purchase price to reduce the gain, as can certain capital improvements, like repairing defects which were present when you bought, but not anything that would be labelled 'maintenance'.
You don't have to live in a house very much to nominate it as your primary residence at any given time, but I suspect it can't generally be your primary residence if it's let to someone else? But there are people who get a home included with their job, I think they can get primary residence relief on a home they own but don't live in?
Im fairly sure that after the 9 months (you get relief on the last 9 months of ownership regardless of whether you own another house or not) if we havent sold it, then the amount of relief we can claim just reduces until it is sold rather than suddenly the previous relief not applying. So, as you say, there are allowances and deductions to be made.
Neither current or new house has been or will be let out. My partner will only own two homes until the first is sold. Hopefully within 9 months so we get full private residence relief and if not there should only be a very small CGT bill if the property takes longer to sell.
Neither current or new house has been or will be let out. My partner will only own two homes until the first is sold. Hopefully within 9 months so we get full private residence relief and if not there should only be a very small CGT bill if the property takes longer to sell.
If a property is your main residence, then there is no CGT arising.
If the property has been your main residence for some (but not all) of the period of ownership, then you are given a time based exemption based on the actual period it was your main residence plus an extra 9 months.
CGT is charged on residential properties which are not your main residence. Whether that property was ever rented out is of no consequences. There used to be an additional relief (letting relief) for a property that had been rented out but that was abolished a number of years ago.
If the property has been your main residence for some (but not all) of the period of ownership, then you are given a time based exemption based on the actual period it was your main residence plus an extra 9 months.
CGT is charged on residential properties which are not your main residence. Whether that property was ever rented out is of no consequences. There used to be an additional relief (letting relief) for a property that had been rented out but that was abolished a number of years ago.
Thanks Eric
The middle paragraph of your quote is what applies, but what happens after the 9 months? I am assuming that the amount of relief reduces by a percentage of total ownership period. Rather than it suddenly not applying at all as the 9 month period has ended.
House owned 5 years total
Lived in for 4
Purchased 2nd house end of year 4
Original house sells after 5 years
Can get 4 years + 9 months relief and there is CGT liable on the portion of the gain to which relief cannot apply which would be whatever percentage 3 months is of the total ownership period which in this case is ~5%?
So, the amount of private residence relief would be reduced by 5%.
The middle paragraph of your quote is what applies, but what happens after the 9 months? I am assuming that the amount of relief reduces by a percentage of total ownership period. Rather than it suddenly not applying at all as the 9 month period has ended.
House owned 5 years total
Lived in for 4
Purchased 2nd house end of year 4
Original house sells after 5 years
Can get 4 years + 9 months relief and there is CGT liable on the portion of the gain to which relief cannot apply which would be whatever percentage 3 months is of the total ownership period which in this case is ~5%?
So, the amount of private residence relief would be reduced by 5%.
The correct way to do the calculation is to total up the full number of months that the property was a main residence and then add the additional 9 months. I'm not going to do the work for you but if a property was owned for 240 months and had been a main residence for 150 months, then the gain is apportioned on the fraction 159/240.
Say the gain was £100,000. Then the element of the gain that would escape CGT would be £66,250 (£100,000 x 159/240).
This would mean that £33,750 would be subject to CGT.
Say the gain was £100,000. Then the element of the gain that would escape CGT would be £66,250 (£100,000 x 159/240).
This would mean that £33,750 would be subject to CGT.
Willber said:
Thanks Eric
The middle paragraph of your quote is what applies, but what happens after the 9 months? I am assuming that the amount of relief reduces by a percentage of total ownership period. Rather than it suddenly not applying at all as the 9 month period has ended.
House owned 5 years total
Lived in for 4
Purchased 2nd house end of year 4
Original house sells after 5 years
Can get 4 years + 9 months relief and there is CGT liable on the portion of the gain to which relief cannot apply which would be whatever percentage 3 months is of the total ownership period which in this case is ~5%?
So, the amount of private residence relief would be reduced by 5%.
For the year you owned two houses, you may, or may not, be able to elect the one you want to sell as your 'primary' residence or whatever the key word is.The middle paragraph of your quote is what applies, but what happens after the 9 months? I am assuming that the amount of relief reduces by a percentage of total ownership period. Rather than it suddenly not applying at all as the 9 month period has ended.
House owned 5 years total
Lived in for 4
Purchased 2nd house end of year 4
Original house sells after 5 years
Can get 4 years + 9 months relief and there is CGT liable on the portion of the gain to which relief cannot apply which would be whatever percentage 3 months is of the total ownership period which in this case is ~5%?
So, the amount of private residence relief would be reduced by 5%.
Whether having a tenant in there makes that impossible is something you'd have to check.
Of course when you come to sell the next house, you will have some potential CGT liability due to it not being your primary abode for the first 3 months or something.
You only want to make the gain that's assessable for CGT less than the allowance....
Yes, an election is possible. It was this rule which MPs were exploiting in the so-called "house flipping" scandal. Back then, the "bonus" additional 9 month addition to the main residence period was actually 36 months - so house flipping could work very well to keep the disposals out of CGT.
With only 9 months to play with now it's more difficult to make "house flipping" work.
With only 9 months to play with now it's more difficult to make "house flipping" work.
Willber said:
Thanks Eric
The middle paragraph of your quote is what applies, but what happens after the 9 months? I am assuming that the amount of relief reduces by a percentage of total ownership period. Rather than it suddenly not applying at all as the 9 month period has ended.
House owned 5 years total
Lived in for 4
Purchased 2nd house end of year 4
Original house sells after 5 years
Can get 4 years + 9 months relief and there is CGT liable on the portion of the gain to which relief cannot apply which would be whatever percentage 3 months is of the total ownership period which in this case is ~5%?
So, the amount of private residence relief would be reduced by 5%.
5% of the gain is taxable. The middle paragraph of your quote is what applies, but what happens after the 9 months? I am assuming that the amount of relief reduces by a percentage of total ownership period. Rather than it suddenly not applying at all as the 9 month period has ended.
House owned 5 years total
Lived in for 4
Purchased 2nd house end of year 4
Original house sells after 5 years
Can get 4 years + 9 months relief and there is CGT liable on the portion of the gain to which relief cannot apply which would be whatever percentage 3 months is of the total ownership period which in this case is ~5%?
So, the amount of private residence relief would be reduced by 5%.
Without derailing this thread I have a query regarding a second property that I currently rent out. I accept CGT is liable for the increase in what I paid for it (likely to be £10k so not a lot) but what if I gave the house away to my daughter as part of IHT planning and at some point she sold it as her main and only property? House is owned outright.
I'm not a powerfully built PH director type and fell into BTL when I bought a place for my daughter whilst at university to save Hall fees. Naturally she is now off plot and it's been rented out for a few years with regular tenant changes and the hassles that ensues
I'm going to give it one more turn of tenants then thinking to sell it. If I invest the money in a fixed bond of 4-5% (tax free as Mrs Shanks is a non taypayer) that's not far off the rental less the fees and no hassle whatsoever even though I've nothing to spend it on and capital gains on properties in the area are low.
I'm not a powerfully built PH director type and fell into BTL when I bought a place for my daughter whilst at university to save Hall fees. Naturally she is now off plot and it's been rented out for a few years with regular tenant changes and the hassles that ensues
I'm going to give it one more turn of tenants then thinking to sell it. If I invest the money in a fixed bond of 4-5% (tax free as Mrs Shanks is a non taypayer) that's not far off the rental less the fees and no hassle whatsoever even though I've nothing to spend it on and capital gains on properties in the area are low. Armitage.Shanks said:
Without derailing this thread I have a query regarding a second property that I currently rent out. I accept CGT is liable for the increase in what I paid for it (likely to be £10k so not a lot) but what if I gave the house away to my daughter as part of IHT planning and at some point she sold it as her main and only property? House is owned outright.
I'm not a powerfully built PH director type and fell into BTL when I bought a place for my daughter whilst at university to save Hall fees. Naturally she is now off plot and it's been rented out for a few years with regular tenant changes and the hassles that ensues I'm going to give it one more turn of tenants then thinking to sell it. If I invest the money in a fixed bond of 4-5% (tax free as Mrs Shanks is a non taypayer) that's not far off the rental less the fees and no hassle whatsoever even though I've nothing to spend it on and capital gains on properties in the area are low.
Gain for you on the gift - market value less cost. I'm not a powerfully built PH director type and fell into BTL when I bought a place for my daughter whilst at university to save Hall fees. Naturally she is now off plot and it's been rented out for a few years with regular tenant changes and the hassles that ensues
I'm going to give it one more turn of tenants then thinking to sell it. If I invest the money in a fixed bond of 4-5% (tax free as Mrs Shanks is a non taypayer) that's not far off the rental less the fees and no hassle whatsoever even though I've nothing to spend it on and capital gains on properties in the area are low. SDLT if she gives any consideration (including taking on a mortgage).
Potentially exempt transfer for IHT.
She will have no taxable gain on sale.
Eric Mc said:
The correct way to do the calculation is to total up the full number of months that the property was a main residence and then add the additional 9 months. I'm not going to do the work for you but if a property was owned for 240 months and had been a main residence for 150 months, then the gain is apportioned on the fraction 159/240.
Say the gain was £100,000. Then the element of the gain that would escape CGT would be £66,250 (£100,000 x 159/240).
This would mean that £33,750 would be subject to CGT.
I think if you move back into a property and call it your main residence for "a period" eg 6 months then you don't pay CGT at all if you then sell it. That's what I heard. Say the gain was £100,000. Then the element of the gain that would escape CGT would be £66,250 (£100,000 x 159/240).
This would mean that £33,750 would be subject to CGT.
Hammersia said:
I think if you move back into a property and call it your main residence for "a period" eg 6 months then you don't pay CGT at all if you then sell it. That's what I heard.
And you heard wrong 
There is no set time period in the legislation for establishing "main residence status". In fact, there are some situations where main residence can be established even if the individual NEVER lived in the property.
There are also some cases where people have "lived" in a property for much longer than 6 months and still failed to get the property classified as their "main residence".
Every situation is judged in the facts surrounding the property and how it has been used.
Eric Mc said:
Hammersia said:
I think if you move back into a property and call it your main residence for "a period" eg 6 months then you don't pay CGT at all if you then sell it. That's what I heard.
And you heard wrong There is no set time period in the legislation for establishing "main residence status". In fact, there are some situations where main residence can be established even if the individual NEVER lived in the property.
There are also some cases where people have "lived" in a property for much longer than 6 months and still failed to get the property classified as their "main residence".
Every situation is judged in the facts surrounding the property and how it has been used.
My salient point in terms of CGT over many years, is being able to cancel out the CGT by moving back in. That's what I heard
Hammersia said:
Yes, I realise that - I gave 6 months as an example because it isn't specified, someone might get away with three weeks, someone else not get away with it having lived there for two years -
My salient point in terms of CGT over many years, is being able to cancel out the CGT by moving back in. That's what I heard
You move the cgt from one property to another. My salient point in terms of CGT over many years, is being able to cancel out the CGT by moving back in. That's what I heard
Hammersia said:
Yes, I realise that - I gave 6 months as an example because it isn't specified, someone might get away with three weeks, someone else not get away with it having lived there for two years -
My salient point in terms of CGT over many years, is being able to cancel out the CGT by moving back in. That's what I heard
There's "moving back in" and "moving back in".My salient point in terms of CGT over many years, is being able to cancel out the CGT by moving back in. That's what I heard
HMRC considers "moving in " to a property to be quite a complicated thing to do and will apply all sorts of tests to the circumstances surrounding the so called "moving in" if they think that the "moving in" was purely to try and change the CGT status.
There have been many CGT cases where this has been a factor.
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