CGT / PPR / Lettings Relief - question

[sredna]

Hi

I bought a house in 2001 (house 1) which my wife and I lived in until last June when we bought a second house (house 2). House 2 required extensive work / modernisation. About half of this work is now done, but we will have to move out in January for six months while the work is finished - no services, etc. House 2 will become our permanent home thereafter.

Would it be advantageous from a CGT perspective to return to house 1 (currently vacant) for this six month period, after which I plan to let it for a number of years? Also, would I be entitled to lettings relief on house 1 if I let it out after this? Finally, would it be beneficial for me to add my wife to the deeds of house 1 to double up our lettings relief to potentially £80k - house is currently only in my name?

All very confusing

Sredna

[Peter D]

Have you totally moved out of house 1 and all formal addresses are at property 2.
If you move back to property 1 and nominate it as your PPR and you move in totally, lock, stock and barrel and change all address to prop1, HMRC council tax electoral register DVLA V%'s licences the lot and you add you wife as an owner ( do that this week ) PPR and thus letting relief is only granted to a qualifying owner and it is normally regarded that a safe time period is 9 months, however in your scenario and as you would not be able to stay at property 2 then 6 months would probaly qualify. There are no fixed rules on this even to the extent that the couts ruled theat it is the quality not the quantity, that is why you should move to property 1 lock stock and barrel.
Now when you have completed property 2 you can move back and Nominate that as your PPR. Now property 1 is rentable lets say for 10 years and you own it 50/50 The property will be CGT exempt for 36 months this period does not qualify for lrtting releif as it is regarded as though you live there. After this the CGT ratio is done by apportioning the gain by the the number of PPR months ( including the 36)/the number of months owned, so that will be different for you and your wife although the gain is shared equally. You also of course are allowed two sets of CG allowance. Bear in mind that the rental income is apportioned by HMRC as 50/50 unless you own the house in a different portion by either Tenants in Common of a robust Deed of Declaration and you declare this to HMRC via Form 17 within 60 days. Now property 2 will have been exposed to CGT during the nominated period but in the longer term it is just a bit of noise. Out of the box thinking, if you have not yet moved any postal addresses to property 2 and you have furniture in property 1 and you have not applied for reduced rates on property 1 then have you actually moved yet. Regards Peter

[sredna]

Peter

Thanks. Yes - I have moved out of house 1. All my addresses are at property 2 now, though house 1 has been vacant, fully furnished (lots of our stuff still there) and I am paying full rates as I need to return there for 6 months while this work takes place in the first half of next year.

I will have to move formally back to house 1 and change all my addresses, as house 2 will be totally inaccessible during the work.

As I only moved out last year do I have to make a formal PPR declaration? I thought there was a 2 year rule at the end of which the Revenue would assume PPR. Also, how is the 18 months that house 1 was vacant regarded by the revenue? Can I claim that as PPR if I move back to house 1 as planned in January?

Also, why do you suggest that I add my wife to the deeds this week?

Many thanks for the advice

Sredna

[Peter D]

PPR is a matter of fact. As all your addresses were for P2 when that is your PPR. There is a maximum nomination window. I was asking about the addresses as between the line is the question have you really moved out, but from what you have said you have. So add your wife to the deeds soon then when you move in just write a letter to HMRC informing them of the new address for all correspondence. Apply for reduced rates on P2 straight away. As you have said P2 will be inaccessible so take photo's just in case you asked to prove it. As your move is totally genuine and your wife is joint owner of P1 then PPR should be fine. but add her to the deeds now, forms available on line form the LR I suggest you do that sooner rather than later. Regards Peter

[sredna]

Peter

Thanks for this advice - esp re the rates.

One option open to us is to move in with family during the rebuild and let P1 immediately to try and save money. If we did this, and I added my wife to the deeds asap, can she still claim lettings and CGT allowance when we sell it? What I'm getting at is, does my wife have to return to the house (P1) to qualify for lettings relief when we sell P1?

Sredna

[Peter D]

CG Allowance but not letting relief as I have explained she has not lived there whilst she was an owner. I you are thinking of renting in the longer term say for 8 or more years then you would gain from her letting relief of £40,000 max. If you expected to rent out for say 6 years then her letting relief may not make any difference. Regards Peter

[sredna]

Six years would be about right.

I bought the house for 100k in Jan 2001, moved out in June 2007 and will probably sell in (say) Jan 2016 - exactly 15 years ownership. Let's say I sold it for 300k in 2016 what would the gain be if (a) we did not move back to the house and therefore my wife was not on the deeds (ie, no lettings relief for her) and rented it from Jan 2009 or (b) we did move back to the house for 6 months next year, before which I added my wife to the deeds and then let it from June 2009?

Also, what do I need to do to qualify for Lettings Relief?

Thanks

Sredna

[Peter D]

Without moving back and still using today CG Allowance and letting from june 09:
Capital Gains Summary

Purchase Price £100,000 14/01/2001
Indexation 0.000 £100,000
Legal Fees £0
Sale Price £300,000 14/01/2016
Enhancements £0
Legal Fees £0
Gross Gain £200,000
PPR Relief £125,140 £74,860
Letting Relief £40,000 £34,860
Taper Relief 0% £34,860
CG Allow'ce 1 £9,600 £25,260
CG Bill £4,547

If you moved back in for 6 months but without your wifes PPR

Capital Gains Summary

Purchase Price £100,000 14/01/2001
Indexation 0.000 £100,000
Legal Fees £0
Sale Price £300,000 14/01/2016
Enhancements £0
Legal Fees £0
Gross Gain £200,000
PPR Relief £131,844 £68,156
Letting Relief £40,000 £28,156
Taper Relief 0% £28,156
CG Allow'ce 1 £9,600 £18,556
CG Bill £3,340

With wifes PPR exemption and LR the Bill would be zero.

It's a bit crystal ball ish but it is just an example.

Regards Peter

[sredna]

Peter

Thanks - this is really helpful.

Looks like putting my wife on the deeds is the way to go.

Two final questions. My wife moved into House 1 when we married in 2005, selling what was her PPR just before we moved into House 2 last year. Would this have an impact on her ability to use PPR and Lettings Relief to minimise her half of the gain when we sell House 1? If so, I assume I could alter the % on the deeds from 50/50 to (say) 75/25?

And, do I have to contact the Revenue to advise them that we intend to use Lettings Relief?

Thanks

[Peter D]

No, when she sold her house then the PPR wne with it. PPR can only exist if the person owns the property in which they live. If the property is owned Tenants in common then you can use any ratio form 1 to 99 to 99 to 1 and use Form 17 to HMRC to apportion the rental income. Remember this also aportions the capital gain when sold and you have different PPR calculations so you need to keep an eye on that aspect. Regards Peter