Tricky property sale CGT problem

[blun]

Hi,

A friend of mine owns his own home which he has lived in for 35 years. Approximately 20 years ago he also purchased a second home that his grandparents lived in.

When his grandparents wanted to move to a retirement flat, he sold the house they were in and purchased a flat. The value of the house that was sold had increased form approx £40k to £160k. Because he purchased a flat with the funds immediately, no CGT was paid at the time. His grandparents passed away, and the flat is currently being rented.

He now wishes to sell the house he is currently in (not the flat) which is his primary residence. He then wishes to live in the flat.

Is there a CGT implication here (either now or in the future)? Or would he be ok seeing as it is genuinely his primary residence that is being sold.

Hope i've explained clearly - please let me know if more information is required to answer the question.

Thanks in advance for any advice.

[Peter D]

When he sold the second home there would have been a CGT liability as CGT rollover relief was not available on residential property. What year was this.
Selling his own house is exempt from CGT read HS283 on the HMRC web site.
When he sells the flat the period of time he did not live there will attract CGT.
Regards Peter

[mullet]

There will be no CGT payable on the disposal of the house if it has been his only or main residence throughout the period of ownership.

The value of the house that was sold had increased form approx £40k to £160k. Because he purchased a flat with the funds immediately, no CGT was paid at the time.

Your friend apparently failed to declare a disposal and pay the CGT liability. There is no rollover relief available for non-business assets, so the fact that he used the disposal funds for a replacement property does not remove the CGT liability.

He then wishes to live in the flat.

CGT will arise on the ultimate disposal of the flat, but the gain will be time-apportioned to account for the period of residence. Moving into it at any given point will not change the historic use of the flat and remove the CGT liability. Under current rules lettings relief is also available in respect of a PRR property which has been let as residential accommodation.

[mullet]

Sorry Peter, that is the second time I have cross-posted with you today. And you were there first both times, by about 3 minutes.

[Peter D]

No Problem. It re-enforces the position for the OP. Regards Peter

[blun]

Thank you both.

The second house was originally sold and the flat purchased around 2004 (not sure if that affects the "roll over" situation?)

[Peter D]

Yes there was no roll over relief on such a property although there was taper relief and indexation. Clearly HMRC have not picked up on the disposal and probably will not now. Regards Peter