Minimise CGT and Stamp Duty Tax on flat sale

[kevbeattie]

Hi all,

I purchased my first property in May 13th 2005 for £168,500 and lived in the flat until 22nd September 2008 (3 years, 4 months). It has been continually rented out since. Outstanding mortgage is £164,000 with an estimated value of £400,000

I then purchased a second flat on 22nd September 2008 for £305,000, lived there until 19th September 2012 (4 years) then moved into rented accommodation. While living in rented accommodation myself my second flat was rented out for 3 years and 1 month. I moved back into my second flat on 19th October 2015 and have been living there since. Outstanding mortgage is £188,000 with an estimate value of £550,000.

My fiance owns a flat that she bought for £415,00 in October 2015 and is still living there. Outstanding mortgage is £300,000 with an estimated value of £450,000.

We would like to sell my first flat and use the proceeds to buy a house and keep my second flat and her one for rental purposes.

We have been advised that if we immediately rent my second flat out and my fiancés flat, then move back into my first flat for 6 months we can avoid 3% extra stamp duty and CGT on sale of flat after renovation.

Basically we need to minimize tax obligations to maximize deposit on new house and will take whatever option is most efficient to do so. I have been given conflicting opinions on this and would dearly appreciate some expert advice.

Thanks K

[maths]

Is the new purchase to be a joint purchase?

[kevbeattie]

Yes, it will be a joint purchase.

[kevbeattie]

Hi,

Does anyone know who I could speak to about my options? I have really struggled to find someone who understand the tax rules and can clearly explain what my best option is.

Many thanks in advance,
K

[Eldercare]

You probably need a STEP qualified person who you can find here: http://www.step.org/member-directory

[kevbeattie]

Can anyone advise if I can now nominate one of my flats as main residence and therefore avoid having to pay CGT on disposal?

As it stands I don't have a main residence l, which is an odd situation to be in.

Thanks,
K

[Lee Young]

You do have a main residence, it is wherever you live.

Electing a second available residence is possible, but it needs to be available to you to live in (if it is rented out then it is not available to you as a residence) and it needs to have been acquired in the last two years.

[maths]

Your current residence is Flat 2.

If you move back into Flat 1 it may become your residence for CGT depending upon your intention when you move back and how long you stay there. On sale a CGT liability may arise depending upon values as it was rented out for 7 years although lettings relief may remove any such liability.

On the new purchase (jointly by you and fiancee) the 3% SDLT charge will apply as your fiancee will not have sold her flat.

[kevbeattie]

Thank you very much Maths!

As we would like to keep my fiancés flat then the additional 3% stamp looks unavoidable. Even if we sold Flat 1 and her flat I assume we would still have to pay the 3% as we would have flat 2?

The current plan is to move into Flat 1 next month and stay there until we have a child and renovate the flat in the meantime. I'm now trying to work out what the total tax liability would be if we did sell in a years' time or so..

October 2017 Flat 1 sale

4 year 4 months as residence
final 18 months relief
8 year 2 months rented

Sale £400,000
Purchase price £168.500
Gain 231,500

80/150* 231,500 = £123466 chargeable gain

£123,466 less unused CGT allowance £11,000 = £112,466

- Letting relief £40000 = £72466

£72466 * 20% = £14,493 final tax liability

Q1. Does the calculation above look right?
Q2. Can I use my fiancés CGT allowance and lettings relief on sale?
Q3. Is the CGT rate 20% or 28% on Flat 1 sale if it's our main residence?

Thanks,
Kevin

[maths]

Crude calculation below; others may provide you with a more precise tax figure.

Assume sale Sept 2017.

Assume you move back in Nov 2016.

Private residence relief for 4 years 10 months [58 mths] includes last 18 moths.
Ownership period [May 2005 to Sept 2017] say 12 yrs 4 months [148 months]
Letting period [Sept 2008 to Sept 2016] say 8 yrs reduced to 7.5 yrs [90 mths] [as last 18 months available for private residence relief]

Gain 231,500
Less PPR [58/148] x 231,500 = 90,722
Less Lettings relief 40,000

Gain 100,778
Less AE 11,100

Taxable gain 89,678 [taxed at 18% and/or 28% DEPENDING UPON TAXABLE INCOME]

Q1. Does the calculation above look right? SEE ABOVE
Q2. Can I use my fiancés CGT allowance and lettings relief on sale? [YES, RE CGT ALLOWANCE, IF AT DATE OF SALE SHE OWNS A BENEFICIAL INTEREST IN IT. NO LETTINGS RELIEF.]
Q3. Is the CGT rate 20% or 28% on Flat 1 sale if it's our main residence? SEE ABOVE

Consideration needs to be given to the timing of any transfer to spouse.