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Where Taxpayers and Advisers Meet

election of property as main residence

Joined:Mon Sep 07, 2015 1:29 pm
election of property as main residence

Postby wheretoturn » Mon Sep 07, 2015 2:27 pm

hello . I'm hoping someone can give me some information/advice as pretty much at my wits end! In 2009/10 we self-built a property in the back garden of our existing house. It is a much more comfortable property than our existing house , big enough to accommodate my elderly parents if need be and designed with downstairs bedroom/bathroom with this is mind. It was always our intention to live in this new house and do holiday letting in the old one. We moved in a few weeks before it was officially "signed off" in spring 2011. But when we had a meeting with the holiday letting agency they said that our old house was not up to scratch for letting and would need significant work etc which we did not then have the means to do. We therefore moved back to the old house and did holiday letting in the new one with a view to saving up the proceeds to improve the old house.. We moved back into the new house over the winter of 2012/13 while some building work was going on in our old house and generally spend time there over the winter months when there are few if any holiday bookings as it is far more spacious & comfortable than our old house! In early 2013 we asked our (then) accountant to contact HMRC to elect the new house as our primary residence within the 2 year timescale he had advised was in place. We never got any confirmation about this from HMRC so I queried it with the accountant in the autumn ( after 2 year deadline was past) and he confirmed he had made the election but would do so again "just in case". All this is in writing via fax & email.
Cut to 2015 and we have had to make plans to retire. This involves selling off the new house as we are not able to survive financially without doing so. Meanwhile our accountant had merged his practice with another who say they cannot locate paperwork relating to the election. Calls and emails to the original accountant go unanswered, though he did say that we would not be able to claim the new house as our primary residence after all because we had not had deeds made up for it when it was built. He never mentioned this at the time.. The new accountants have basically washed their hands of this and just say we will need to talk to the original accountant!!. So my questions are;
1) how can I find out if the election was in fact made as instructed - should I just ask someone at HMRC?
2) If the election WAS made, would HMRC accept the property as our main residence and thus exempt from CGT in the circumstances I've described?
3) If the election was NOT made, where do I stand with HMRC and, what if anything can I do. ?
I'm not sure exactly how the calculation for CGT would be made on the new property ( it would at least be eligible for entrepreneurs relief as a holiday let,) but as the original house/land was bought in 2000 it would be an awful lot of money if not exempt.
Hoping someone can advice me on this problem!

Joined:Wed Aug 06, 2008 3:22 pm

Re: election of property as main residence

Postby King_Maker » Mon Sep 07, 2015 6:04 pm

The title of this thread demonstrates a common misconception about such Elections/Nominations.

It is only if the taxpayer has two (or more) RESIDENCES not PROPERTIES, then an Election is competent. Therefore, any purported Election (even if lodged with HMRC) may be invalid.

It appears from the details given that House A (the "old house") is likely to be your residence from 2000 to 2011.

However, since you seem to want to "retire" back in House B, it is the possible CGT liability on the disposal of House B which is of current concern?

You have identified the two possible options of CGT mitigation - PPR (Principal Private Residence) Relief or Entrepreneur Relief. Of the two, the latter is likely to be more advantageous. Although House B may have been a Holiday Let, did it actually qualify, in tax terms, as a Holiday Let.

What is the estimated gain on House B, as it is only 4 years old?

What is the reference to the Title Deeds by your old accountant? Is only House A registered at the Land Registry?

To try & answer your questions :

1. You can ask HMRC if they hold the relevant Election(s) sent in my your old accountant. I would not advise it at this stage, but wait until all the data is assembled.
2. Possibly - but refer to my above comments.
3. If no Election was lodged with HMRC, you may have a negligence claim against your old accountant or the new accountant (depending on the terms of the merger). A Late Election MIGHT be accepted by HMRC, as a concession

Have you read HMRC's Help Sheet HS283 on this subject?

[For disposals after 5 April 2014, the exemption for the last 36months of ownership is reduced to 18 months.]

Joined:Mon Sep 07, 2015 1:29 pm

Re: election of property as main residence

Postby wheretoturn » Thu Sep 10, 2015 10:24 am

hello again. Thanks for your interest and helpful information. I will certainly look at the HMRC factsheet.There are a couple of points I need to clarify.
1) reluctantly, it is the NEW house (house B) which we are having to sell for the simple reason that it is worth considerably more than our old house and will thus hopefully give us enough capital to fund our retirement.
2) Yes, the old house was our primary residence until 2011, as our new house did not exist until then! It was a self-build in our back garden. It is not yet registered as a property with the land registry. We were advised at the time that this did not matter as it is the ownership of the land which is important and we already have registered title to this since 2000 when we bought our old house.
3) The new house will definitely qualify as a furnished holiday let. It is available to let whenever, though in practice it is not let much in the winter months, which is when we tend to live there. We are able to block time off for ourselves whenever we wish
4) The new house will not have gained much in value since it was built. But as we already owned the land, the basis of the capital gain calculation would, as I understand it, be based on the the value of the building plot with planning permission as a proportion of the original cost of the whole plot, plus building costs. If this is not right, please let me know! Original cost of old house & garden was 135K plus costs ( it was a fire damaged property). Plot with p/p valued at 240k in 2009/10 when build started. Old house and remaining land valued at about 290K. |Build cost around 235k and value of new house today 600K.
5) I'd be grateful for more detail on what you mean by not contactimg HMRC until all data is assembled. What is the data I need and is there anyone in HMRC in particular to contact?
Any further information & advice on how to proceed would be much appreciated. Obviously, the outcome I would like is for HMRC to accept the new house as our primary residence.

Peter D
Joined:Wed Aug 06, 2008 3:37 pm

Re: election of property as main residence

Postby Peter D » Thu Sep 10, 2015 2:05 pm

"The new house will definitely qualify as a furnished holiday let." what makes you think this. Have you read the rules governing FHL and how many weeks they have to be let and how you deduct the weeks you say there. Regards Peter

Joined:Mon Sep 07, 2015 1:29 pm

Re: election of property as main residence

Postby wheretoturn » Fri Sep 11, 2015 9:47 pm

Hello Peter The house is available for let all year -most bookings are well in advance so we know when it will be available to us. November/December/Jan & Feb are quiet times (apart from xmas/newyear) The house is in the original back garden and we have direct access between both houses. It is certainly available for more than 210 days and certainly let for more than 105. We've never done any long-term letting .Are there other rules I should know about?

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