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

[b4cvm]

We have a property owned since 1970. In 1995 brought an old property, let out main home as income, being told by taxman that Reliefs were available that would negate most of any gain, or that we could return to main property after selling up our small property and go back to living in 1st property as main home, after 2yrs or so no CGT would be due. Today I spoke to IR who tell me, that the gain in the property from 1982 - not 1995 is subject to releifs for private residence letting relief, of some £156249.00and £40000 extra relief, leaving a gain of 5553.750. on a sale of 750k. BUT that even if we returned to live in the property as our main only home, this would still be flagged up as a CGtax if we sold it after 4 years.It seems harsh. A freind had brought a house for letting never lived in it, was told by his accountant that going to live in it for 2 years would wipe out any gain made over the years if it was deemed his main private residence, Can anyone tell us if I have misunderstood the information given by the tax people today? I should be very grateful for any help Thanks

[Peter D]

You will have a CGT liability but lets see what we can do. I need the date of acquistion and ant legal fees, tha date you left the property and the date you sold the property the value and the sales and legal fees. If you both owned the property then there will be two sets of Letting Reif and two sets of CG Allowance available. I will need the gross income of the individual owners in the FY of disposal. I'll run the numbers and you can see for yourself. Regards Peter

[Incredulum]

Your post is very unclear. But assuming it is the 1970 property you are selling, Peter D will also need the March 1982 value.

[b4cvm]

Thank you. We purchased the property jointly in August 1970.£11,500 in about 1980 a extension made the property larger property value in 1982 aprox £100000.00 Main residence until we purchased a small run down property in 1994, moved into this in May 1995 Letting out the 1970 property value at that time about 300k (main home till 1995) Have let the property out more or less since that 1995 date some gaps in lettings. Had decided that the property we are now in is too much upkeep and will have to sell, proposed going back to old home for a few years and refurbishing & redeveloping it into a larger property, then after a period of say 4 years moving on after selling this property. Spoke today to tax office who told me that even if we moved back into the old property after selling current home, it, ]the 1970 property would still be liable to CGT if we ever sold it.] Because our plan is to develop the property as its on a large plot, it would become too large for us in our eighties to manage, so we would wish to downgrade, after say 4 years. This property is currently worth some £750000- After development it would be considerably more. Why on other parts of this site do advisors say that people can go and live in a property they have had in BTL circumstances, yet this Capital gains tax situation does not arise? Also the Tax office told me that transferring from joint to single ownership between spouses would raise a CGT event against the gifting party,seems odd. Is this true?
One party is has income this year of £40463 the other £26000.00 due to savings having been invested in high rate area. But next year not anywhere near that return because rate have plummetted.Next year was the time we proposed to move after selling up 2nd house.I have no idea of the legal fees of the purchase in 1970.I have no idea of the cost of legal fees in its sale but ball park must be possible, I would have thought. Estate agents fees are about 2% in that area, Lawyers - well who knows!!. must have a sliding scale I would have thought. most grateful for your assistance.

[Incredulum]

To whom does the property belong currently?

[Incredulum]

And are you married?

(I agree, by the way, HMRC are wrong to tell you that a transfer between you would create an immediate CGT liability.)

[Peter D]

Your scenario is complicated by the options but if you sold it next months as joint owners then the CGT bill would be circa £24,796 and £23,350.
Interspousal transfers do not attract CGT so you HMRC office is not correct.
Moving back in for 4 years does not do a lot for you as the last 3 years are free form CGT no matter what ( Read HS283 on the HMRC web site ) it would alter your PPR apportionment but not by a lot. If you did move in and made it your PPR again then expanding the property and may be selling or building other houses in the garden may be advantageous. Beware of the IHT issues here, you need well versed professional advice on these issues. Regards Peter

[b4cvm]

And are you married?

(I agree, by the way, HMRC are wrong to tell you that a transfer between you would create an immediate CGT liability.)

Thank you for reply, Yes we are married. Also, when you say HMRC are wrong to tell you that transfer between us' would create an immediate CGT liability ' Are you suggesting it could create a later one? Or can we treat this as our main home - which it would be - the only one property, therfore be free of any liabiltiy?

[b4cvm]

Your scenario is complicated by the options but if you sold it next months as joint owners then the CGT bill would be circa £24,796 and £23,350.
Interspousal transfers do not attract CGT so you HMRC office is not correct.
Moving back in for 4 years does not do a lot for you as the last 3 years are free form CGT no matter what ( Read HS283 on the HMRC web site ) it would alter your PPR apportionment but not by a lot. If you did move in and made it your PPR again then expanding the property and may be selling or building other houses in the garden may be advantageous. Beware of the IHT issues here, you need well versed professional advice on these issues. Regards Peter

Thank you very much, so, if I understand you correctly, the HMRC office is not correct in saying a transfer between husband and wife will attract CGT liability.

YOu seem to be saying if sold next month, then as joint owners with our present tax status, tax would be in the region of your above quoted figures. A lot better than we were told today ! Your figures are hopefully based on what we gave to you earlier ?

I understand that next year could be very different if rules changed. Please explain what you mean by IHT issues here, if we lived in the property whilst developing it how could those arise.
Also please clarify - were the HMRC office also incorrect in saying that only one amount of £40,000 letting allowance would be due - not 2 as we were told some years ago?
We are very grateful for your advice, but then, its what we wanted to hear!! Thank you

[b4cvm]

Sorry, further questions - just realised, are the IR Office correct in telling us that we would be liable for CGT even if we went home for a number of years, when does this liabilty cease? If one of us dies, the other gets the property (mirror wills) is the cgt still liable to be paid. I just do not understand how this works if we have no other home. and we were livng there.When does it become a tax free item? please.
Thank you