CGT on property used as main home then let for 15 years

by **Peter D** on Thu Aug 19, 2010 7:52 am

Do you 'jointly' own the property. Who's name is on the deeds. Please tell us. Yes either HMRC are wrong, or you have not understood them, or you have given them misleading information.
Moving back in does NOT remove the CGT liability when you sell it, it just changes the figures slightly as you have actually lived in the property longer thus the PPR apportionment ration chenges slightly.
IHT, if you developed the property, sold some land and any other plans then the value of your estate has grown, may be considerably, thus if something happened to you that caused an IHT calculation to be done, then there may be a large ( 40% ) IHT bill. This should not deter you from developing the property but you need to be aware of the real situation.
There is no CGT on death or inheritance. Regards Peter

by **Peter D** on Thu Aug 19, 2010 8:32 am

As you are maxed out on the Letting Releif at £40,000 per owner then moving back in will not change this in your scenario. To put this in perspective if you had moved back in 3 years ago and you sold next month then the CGT bills would be £14,923 and £13,476 almost £10,000 less each. This is due to the PPR apportionment of 194/341 compared to 230/341. These are the actual months number of months you lived there plus 36 divided by the total number of months owned.
I note you stated "joint to single ownership between spouses would raise a CGT event against the gifting party, seems odd. Is this true? " No it is not true and why would you want to do that.
I suggest you stop talking to the tax office. I you told them to were only moving back in to develope the property then it may imply it is not your intention to make it your home again. You move back due to the upkeep on your present home, make your original home your 'home' again and the development plans come later, much later.
Regards Peter

by **Peter D** on Thu Aug 19, 2010 8:38 am

I have just realised that my PPR approtionment and the reduced CGT figures are wrong. This is due to you moving back in during the last 36 months which are always exempt and and I double accounted for them see CG64990 on the HMRC web site. You would have some tax saving if you lived there for 4 years but not 3 years ( 36 months )
Regards Peter

by **Peter D** on Thu Aug 19, 2010 8:43 am

A 4 year residence would reduce the CGT to £21,327 and £19,881
My apologies for the error. The PPR would be 206/341.
Regards Peter

by **b4cvm** on Thu Aug 19, 2010 11:17 am

Thank you so much.Answers to your queries.: The house is in joint names on the deeds.I did not mislead the IR nor speak of devlopment . But I did ask her if the rise in property prices during the term of our return to what would be our- only - property(In other words our PPR) if these gains would be subject to capital gains tax. She said yes. That the property had become liable for CGT and she seemed to say it would do so in perpertuity. Can this be correct?? it seems so unfair if it has become the PPR

The development idea is only for the future and while we are living there.It seems so odd that after being back in the property after sale of other home, any additional value by development or rises in property values will still attract GCT. Surely, the fact that we live there solely during that rise must at some time wipe out the CGT issue. I understand that the CGT due at the time of our returning to make it our residence will still be due, but not further liability. Someone we know brought a BTL house - his accountant told him that to avoid CGT he must go and live in the property for 2 years, before selling. ( I realise no real detail in this, but seems so unfair that we cannot get any answer as to what length of time we need to negate CGT) But many thanks for such help

by **Peter D** on Thu Aug 19, 2010 12:27 pm

The gain on your property is based on the open market value at the 31st of March 1982 to the value when you sell it. The gain is treated in a linear fashion of the period of ownership. However some development/extension of the property may be classes as enhancement and is therefore deductible from the capital gain prior to PPR apportionment. The apportionment will never be 100% but as I detailed the actual period of residence does increase once you have re-lived in the property for more that 36 months. There will be a CGT laibility in perpertuity but the apprionment will change slowly in your favour if you stay there long enough.
You B2L example would only work if he actually only owned the property for 3 years and lived there as his genuine home for the last 2 years and had no other PPR. He could live there for 2 years then leave and rent it out for 3 years and there would be no CGT as the last 3 years are exempt the same as in your case.
In the examples of CGT I have given I have assumed you have a Tax Code of £9775 I hope that is correct.

Regards Peter

by **Incredulum** on Thu Aug 19, 2010 1:22 pm

If one of you is likely to die before you sell it, then that person should own the house outright.

On death there will be a tax-free CGT uplift, and the surviving spouse will inherit the property free of IHT and can then sell it free of CGT.

by **b4cvm** on Thu Aug 19, 2010 2:57 pm

Hi Peter,

Yes I realised as I posted that the BTL man had probably owned for not too long.

But I obviously dont really get my queries across clearly. (and not always understand answers) On the issue of the calculation for CGT you seem to be agreeing with the IR that having once got into being deemed a CGT bracket the house can never escape this even if becomng PPR. So am I correct in saying that any price rise due to any reason after our going back still becomes subjct to CGT on sale.?
There is no provision for it to be calculated and stay at the figure on our return.? Then going forward as PPR free of tax. You say some development etc, may be classed as enhancement and deductable from the CG prior to PPR. What is meant by 'some development' - and 'enchancement' - prior to PPR apportionment (does this mean calculations on the sale ) It almost feels as though it is not worth returning - just develop and sell over a period of three years, after selling this property.But I'm interested in what developments are enhancements - and what these terms mean.

The tax code for one is as you state but the other is something awful like K220, so your figures may be slightly out, but better that IR told us. It is only ball park we are talking here, we are aware, and very very grateful.Thanks again

by **Incredulum** on Thu Aug 19, 2010 3:11 pm

With regard to your question about fixing the gain between 300k, and 750k as the only taxable part. Have a read of this. http://www.taxationweb.co.uk/forum/lost-money-on-former-ppr-now-btl-yet-cgt-still-to-pay-unfair-t30401.html?

However, the best solution from a tax perspective is for the property to be 100% owned by the first partner to die. Then there would be no CGT at all.

by **b4cvm** on Thu Aug 19, 2010 5:48 pm

Hi Incredulum
Thank you for the tip I have looked at the section and copied it for later reading.
Your remark about the 100% ownership of the first partner to die - no CGT to pay. If one joint owner dies, does the other have to pay all the CGT on any sale or just the half they owed as it were.?

From what you sent to me it does look at first glance as if there are options to argue cases ... seems odd that MPs can flip properties but we plebs cant! Years ago when we first let out, someone told me that we could opt to change our PPR by just writing to IR and stating which property was PPR. This is what the MPs did.