# Capital Gains Tax and what is your main residence.



## sixsr (Jan 6, 2007)

Looking for some advice.

I've got a flat which has been leased out for the last few years, we're shortly going to starting to build an extension in the house we live in and will be moving back into the flat while this work is taking place.

Does anyone know if by moving back in, even for a short period of time, can the flat be classed as our main residence and be sold later in the year without having a capital gains tax liability?

Thanks in advance for your feedback.


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## ZedFour (May 6, 2008)

"You don't have to pay Capital Gains Tax when you sell or dispose of your home as long as all of the following apply:

-it was your only home for the whole period you owned it (ignoring the last three years you owned it) 
-you used it as your home and nothing else all the time you owned it "


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## sixsr (Jan 6, 2007)

Neither of those apply for me.....


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## ZedFour (May 6, 2008)

So the fact that you have rented it out at some point means that it will be liable for CGT


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## Mat430uk (Sep 17, 2007)

still liable if its longer than 3 years since you moved out as your main residence


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## sixsr (Jan 6, 2007)

So basically I can't make it my principle residence, live there for a while and then sell it without having capital gains liability while my other property is unoccupied?


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## organgrinder (Jan 20, 2008)

Basically if you are only moving to the flat because of the work being done on your house I think you would have a slim chance of persuading HMRC that the flat was your principle private residence. If you decided to try it you should write to HMRC and elect that the flat is your PPR. I don't think moving in for 2 months will cut it and you must show that it was your intention to stay there.

Have you done the sums on the flat to find out how much CGT you would pay? You have a CGT exemption of £9,600 before you pay any tax. If it is in joint names you have double that figure. If the flat isn't in joint names just now you should get it changed.

If you did manage to persuade HMRC that the flat was your PPR, you get credited with the last 3 years of ownership as if they were used as your PPR.
The gain would then be time apportioned between period as PPR and period let. There is also a letting allowance for CGT under S223(4) which can give up to another £40,000 in relief (not much used but very useful).

Finally the time you are deemed to be using the flat as your PPR would be treated as a period when your main house was not your PPR which could in some circumstances mean you might pay tax on your main house if you sell it.


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## sixsr (Jan 6, 2007)

Thanks organgrinder.

I would probably be back in the flat for 6 months, just wondered if there was a loop hole which could be tax efficient to make best use of the situation.

However, it doesn't look to be that simple. Probably putting the flat into joint names will be the most sensible thing to do and share the liability. 

The value has gone up by about £50k since I bought it in 2000. I'm thinking its going to be about £8k in capital gains tax to sell it.

Now I'm thinking I should just keep it and sell when prices go up again....


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## organgrinder (Jan 20, 2008)

sixsr said:


> Thanks organgrinder.
> 
> I would probably be back in the flat for 6 months, just wondered if there was a loop hole which could be tax efficient to make best use of the situation.
> 
> ...


Remember that CGT is only chargeable at 18%. You also get to deduct all the costs of buying and selling the flat in the calculation.


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## sixsr (Jan 6, 2007)

I know, still nothing would be better!

I presume there would be an allowance for money / work which has been done to the property. For things such as fitting new windows, installing kitchen etc - how could I get relief for this without receipts (as it was done some time ago)?


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## Richf (Apr 26, 2008)

Organgrinder you seem to have a good knowledge here , i believe taper relief has now gone but is there any allowance for longer time periods??

We bought our flat in 1989 for £63k and its now worth £180 , its been rented out since 1995 but we would like to sell it eventually is there any benefit CGT wise to hold onto it ???


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## organgrinder (Jan 20, 2008)

Richf said:


> Organgrinder you seem to have a good knowledge here , i believe taper relief has now gone but is there any allowance for longer time periods??
> 
> We bought our flat in 1989 for £63k and its now worth £180 , its been rented out since 1995 but we would like to sell it eventually is there any benefit CGT wise to hold onto it ???


No I am afraid not. The reduced CGT rate of 18% was supposed to compensate people for the loss of taper relief.

I presume you lived in the flat for the first 6 years. If so and you sold it now, your total ownership period would be 20 years and your gain £117K. Of the total period, you lived in it for 6 years and will get the last 3 years thrown in for free, making 9 years free of tax. The remaining 11/20 x £117K is chargeable to CGT at 18%. i.e. £64350 x 18% = £11,583.

As I mentioned above there is a little known additional relief available of up to £40K and I think from your figures you would get it all. This would reduce the gain to £24350 @ 18% = £4,383 in tax. When you throw in legal and estate agents fees, these will reduce the taxable amount further.


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## Dipesh (Oct 12, 2007)

Organgrinder bang on as always :thumb:


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