CGT on second property

by **kate007play** on Thu Sep 02, 2010 2:20 pm

My Mum and Dad recently had a house built in their garden, moved into it and put a tenant in the old one. We are aware that if they sell the old house within three years then no CGT will apply... but me and my husband have decided to move into the old house and rent it off them until we are in a position to buy it, we have 2 houses to sell and only 18 months left of the 3 year dead line!

My dad has had some advice that confused us somewhat.... 'because my mum and dad lived in the property for 23 years before selling it (after the 3 years), the CGT will be at a much smaller percentage' - could anyone clarify this matter for me? Is the 3 years crucial? As the profit made on the property over 23 years is considerable.
Many Thanks
Kate

by **Peter D** on Thu Sep 02, 2010 2:47 pm

Any gain would be the sale value minus the acquisition cost apportioned by the actual number of yeras lived plus 36 divided by the total period of ownership.
If you are going to rent the property then Letting relief will apply ( Assumes open market rent ) so there may be no CGT liability when you purchase the property. It should remein free of CHT for 6,7,8, or even more years. This is due to LR being limited to up to £40,000 per owner. Regards Peter

by **Incredulum** on Thu Sep 02, 2010 3:13 pm

Who owns the house - your parents, or just your father?

Please provide dates for: when parents moved out; when tenants moved in; when tenants moved out.

Please provide cost figure, and current value, and enhancement expenditure - extensions etc.

by **kate007play** on Sat Sep 04, 2010 2:55 pm

Old house bought jan 1989 £47.000 parents joint owners.
Moved out march 2009. family friend moved in june 2009 to present(paying bills/mortgage so no rental income)
Parents will sell to me for £184.000.
We understand no cgt if we can complete by march2012,but what would be payable another year or two i cant sell my house.

by **Peter D** on Sun Sep 05, 2010 9:30 am

IF they had rebted the property to the family member at a sensible rent then there would be no CGT due to letting relief. It is questionable if they are letting it or not. However if they sold you the house for £210,000 on the 14/9/2014 there still would not be any CGT laibility as the gain after PPR apportionment would leave a gain that is less than their joint Capital gains allowance of £10,100 each so no tax. Regards Peter

by **Incredulum** on Mon Sep 06, 2010 8:11 pm

Peter D wrote:IF they had rebted the property to the family member at a sensible rent then there would be no CGT due to letting relief. It is questionable if they are letting it or not.

I disagree. Consideration passes, there is a rental agreement (even if only verbal), there is nothing in the legislation to say that it has to be at market rent in order for letting relief to be due. Letting relief therefore applies.

£10 to Peter D if he can identify any legislation/HMRC guidance indicating that letting relief is not due on account of the non-market-rate rent.

by **Peter D** on Tue Sep 07, 2010 9:14 am

If the property was kept for more than 3 years and then had unofficial tenants then the CGT pages relating to a disposal would require a claim for Letting Relief and the calculation declaring the lessor of the Private Residence Relief, The gain accountable to any qualifying letting period, or the Maximum of £40,000. HMRC would note the qualifying period and check the owners SATR for declaration of rental income/loss. If there is no entry then an enquiry would be opened, this would request a copy of the Tenancy agreement/s, property rental compliance thing like Gas Safety certificate ( legal requirement ), electrical safety ( recommended ) change of use authority from any mortgage provider ) building insurance for rental use, etc. etc. anything to support that the property was being rented out. If there is no compliance and no declaration of gain/loss then there clearly was no rental just a second home where friends and visitors were allowed to stay.
I doubt you have ever submitted a claim for LR under these circumstances, never mind handle the resulting enquiry, so I suggest you stop banging your drum.
Regards Peter

by **Incredulum** on Tue Sep 07, 2010 4:22 pm

Failure to comply with the law on gas safety certificates and BTL mortgages etc. does not preclude LR. You are of course correct to say that the evidence to which you refer would be indicative of renting, but the absence of all that information does not preclude the existence of a letting.

Peter D wrote:If there is no compliance and no declaration of gain/loss then there clearly was no rental just a second home where friends and visitors were allowed to stay.

This statement is just not true for OP who states clearly that there IS currently rental income.

by **maths** on Tue Sep 07, 2010 4:36 pm

Not wishing to get caught in the cross-fire but i seem to recall we all debated this issue of what constitutes a "let" sometime ago, but God knows precisely when and in response to which query.

by **Peter D** on Tue Sep 07, 2010 4:44 pm

It was stated "family friend moved in june 2009 to present(paying bills/mortgage ) so no rental income". It appears to be just a second home and LR will not be available. This could of course be formalised and the daughter can pay a realistic rent on a tenacy agreement to secure LR if required in the future. Regards Peter