Question on main residence and CGT, please help

[susane_he]

I have owned a flat for about 5 years which I have recently decided to sell. I bought a new flat on 10th July 2007 and then put the old flat on the market for sale. I moved into the new property on 5th September. However, I have not yet been able to find a buyer for the first flat and was wondering if I would be liable for CGT if I now sell the new flat instead and move back into the old one.

Would I then be liable for CGT if I then decide to sell the old one in a few months time ?

Many thanks in advance

[al_eebee]

You may have a bit of a struggle getting HMRC to accept that the new flat had actually become your main residence for such a short period.

You will be needing to prove intention at the outset and that it was pure circumstance that led you to sell the new flat and move back to the old. You can show that to an extent having put the old flat on the market and moved in to the new, but it is still a short period of ownership for the new flat and whilst there is no specific period of ownership and use you could hit problems.

How much gain might you have made on the new flat in 3 months and why are you giving up trying to sell the old flat so quickly

Potentially both properties would be exempt, BUT expect a strong argument against exemption being available against the new flat if you sell on so quickly and be ready with evidence, both true and plausible as to the quick change of heart and sale.

If the sales do happen in the way you suggest (move out of new & back to old, sell new then soon after sell old) then make sure you:

1) calculate the gain on disposal of new on a worst case / no exemption available basis, and put the tax potentially due aside against losing an argument re relief for new with HMRC

2) complete and submit tax return(s - if disposals in different tax years), even if you are assuming both are exempt.

3) Do not complete CGT pages but do include notes regarding the disposals, periods of ownership and position taken as to exemptions available sufficient for HMRC to be aware that the possibility of a claim for PPR exemption on new property might be in question.

Sit back and wait for HMRC to open an enquiry within the 12 month enquiry window.

So long as it is clear to a reasonably competent inspector from the notes in the return that the PPR claim on the new property might be contentious he should be restricted to 12 months from submission of the return to open an enquiry, and NOT have the option of re opening the year on a "discovery" after that date.