CGT on 2 properties

[learningfast]

I've searched the site for similar issues - but mine query appears to be new! My wife and I are in the process of buying a second property for redevelopment as our main residence - its a scrappy bungalow but in a large plot. The project will probably take a couple of years to get to a stage before we sell our current existing home - which is in joint names. I want to minimise potential CGT on the second property, especially with property prices rising so fast. I won't be renting it out and I'm going to have to pay Council Tax on it anyway - or pull it down now.
Can I register the title of the bungalow in my sole name and declare it as my primary residence, thus avoiding CGT on any increase in value of the site, whilst my wife continues to declare the current property as her main residence. (I would actually move into the bungalow if it avoided the CGT!).

[tax accountant]

Hello,

The basic position is that a man and wife living with him are only entitled to 1 main residence exemption. However there are exceptions to this rule in the case of seperated couples. |Dependent on the circumstances, there are a number of potential options available to minimise CGT. Please contact me at the e-mail address below if you wish to pursue this matter.
Regards,

M Tomlinson
Tax Accountant

mal-tomlinson@lineone.net

[taxman]

Further to the above, the exceptions for seperated spouses is unlikely to apply, as the Inland Revenue interpret this in a stringent way, (ie permanent seperation is likely or a court order).

The most likely exemption is that can claim 2 main residences where there is a delay in taking up residence - can be up to 24 months with IR approval, although there are conditions to this.
Please contact me on above e-mail if you would like me to assist you in this.
Regards,

A Opt
Tax consultant & Chartered accountant

[steve@nunn-hayward.c]

As you do not appear to be talking about "seperation" in terms that are likely to be permanent, the basic rule subject to the special rule below, is that a married couple can only have one main residence for CGT purposes.

I believe that the special "deemed Residence rule" for delays in taking up a residence is actually 3 years not 2 which possibly makes it easier to assess whether you can complete the "re development". Also the process would require you to live in the bungalow but not full time. More importantly however an election to put beyond doubt which is your main residence should be made within two years of aquiring the 2nd residence.

It alsoseems that the VAT "DIY Builders Scheme" may be relevant to save you some VAT?

My other concern with what you are proposing is to ensure that should you get an offer you cannot turn down for the project house before moving in and selling your current house is to ensure the revenue cannot attack the "gain" as effectively a trading profit with no CGT exemption.

If you would like to assess your position and an appropriate way forward please call me.

Regards

Steve Cook, ATII
Tax Partner
Nunn Hayward, Chartered Accountants
01753 888211

[taxman]

Hello
Further to my earlier response, it is useful to clarify the rules as i believe the above respondent has got slightly confused over the relief that i was suggesting.

The treatment as the individuals only or main residence appiles during the 12 months (or longer period up to a maximum of 2 years if a good reason can be shown) prior to taking up residence during which alterations were being made to it. (Revenue pamphlet D49). This period will not be extended beyong 24 months. No main residence election is then required if the effect of this is to treat the individual as having 2 residences for a period since relief will be available for both residences for that period. This will apply in spite of no occupation during the period of alterations.

regards

A Opt
Tax consultant & chartered accountant

[learningfast]

Well thank you all for such a quick response. Steve, I already know about the VAT for self-builders, but thanks anyway.
Whilst a couple of you mention the "deemed residence rule", this isn't going to stop me having to pay CGT on one of the two properties - it just allows me to decide which one, presumably?
Steve - I don't get what you refer to by "an offer you can't turn down for the project house"? For clarity, I will have to sell my current residence and move into rented accommodation (or the scrappy bungalow) whilst the project build occurs, but the IR will potentially assess me for CGT on the change in value of the project house before I get started? Regards, Omega42

[taxman]

hello,

There are broadly 2 ways of achieving your aim. i.e no CGT on either property
1. Elect for the new property to be your main residence. the deemed residence rule of 36 months will then cover the old property providing you sell it in this period.

2. if you are to sell old property within 24 months, then could follow the rules for delay in moving into property due to alterations etc & both properties would be exempt, with no need to move in & no election.