CGT, PPR and propery tax

[realmccoy]

I have 2 houses, one which I am living in P1 and another one which I bought in March 2001 and rented out, P2.

P2 cost £160,000 and is now valued at £240,000. I am thinking of selling P2.

1. How can I avoid/mimimise on CGT on P2.
2. How do I prove what is my PPR
3. How long do I have to live in P2 to qualify
for the 3 year PPR rule before seeling.
4. How can the Inland Revenue find out if I have
2 or more properties, and what happens if I don't choose my PPR?

[Huw Williams]

I will only make a few general comments here and recommend you seek professional advice as there may be other issues which need to be taken into account.

1 Minimising tax involves making the most of available reliefs and exemptions. You are already considering the principal private residence relief("PPR"). Also make the most of annual exemptions and taper relief.

2 PPR is based on facts. If you only live in one property, that is the only one that can be your PPR. If you live in 2 (for example a flat near your work and a weekend retreat) you can elect.

3 Again this is based on facts. PPR is not available artificially - you have to move to P2 for it to become your PPR. There is no minimum period, but staying there a few days only would invite an enquiry from the Revenue.

4 The Revenue already know you have 2 properties as you will have included rental income on tax returns for years (I hope).

Please email me if you want to go into more detail.


Huw Williams
enquiries@huwwilliams.co.uk

[Nigel Lord]

realmccoy

There are a number of strategies to minimise the CGT liability on Property 2. These include:

1. Living in the property for a short while and claiming Principal Private Property (PPR)relief. This may be achieved without too much disruption or cost and may have a significant impact on your exposure.

2. If you are married, transferring part or all of the property to your spouse to utilise her annual exemption, lower tax rates. This may be achieved cost effectively by using a deed of gift.

3. Transferring the property to a trust and making a hold over election.

Each of these strategies needs to be entered into with caution, and professional advice should be sought.

To establish which property is your PPR an election must be made within 2 years of the existence of a second main residence. The PPR does not have to be the residence in which you spend most of your time. It is not possible to treat the second property as a PPR whilst it is let and not available to you. Again you should seek professional advice.

There is no definitive length of time you should reside in a property prior to PPR becoming available. There are a number of actions that you could take to establish your entitlement to relief.

Some ways that the Inland Revenue could ascertain that you have two properties and are not declaring income or gains include:

1. Selection of your case at random, or due to some discrepancy.

2. Review of the land registry or council tax records.

3. Attention of the black economy unit.

4. Information passed by disgruntled tenants, neighbours or other third party.

5. A publicised incident such as crime, fire, accident etc.

6. A routine review of your returns, those of your agents, or your tenants

As CGT is relatively easy to mitigate using legitimate strategies evasion is a substantial and unnecessary risk.

If you do not make a PPR election within 2 years, this would be established as a question of
fact and may result in a disadvantageous answer. It is possible to vary the election to maximise PPR on two properties.

Our firm specialises in this area of taxation.

If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.

Nigel Lord
Lord Associates
Taxation & Business Consultants
102 Smarts Lane
Loughton
Essex, IG10 4BS
020 8508 1642 & 07769 931852
lordassociates@ntlworld.com

[realmccoy]

First of all, Thank you to the people who answered my questions, and steered me in the right direction.

At the end of the day I will definately seek professional advise as it only makes sense to do so. The problem is who's advise do I seek?

I've been to JoJaffa's web site which sells the Property Tax secrets book and the TaxCafe site which does a similar book, but slightly cheaper. Are these guides any good, relavant, accurate?

Before choosing an accountant/Tax specialist, how can I access how good the service is going to be, and how can I determine which Tax specialist will make the right decision, hence giving the most tax efficient adive?

These are many accountants in my area and even on the net, but I don't have a measuring stick by which I can judge ther performance. Does the accounting world have some sort of tables or regulation body which can help sort out the good from the bad?

Also, how is the commission charged? Is it usually on a % basis or fixed fee, and how do I know i'm not paying over the odds for the wrong piece of advice.

I'm sure there are many people who are facing this same problem.

Thank you in advance to all those who answer my questions or express their views, and thank you to Taxation Web for this excellent service

[Nigel Lord]

RealMcCoy

Your requirements are entirely tax based. Although larger firms of accountants and those that specialise in tax will be able to assist you, we would recommend that you approach a tax specialist who is a member of the Chartered Institute of Taxation or Association of Taxation Technicians.

Our firm will be pleased to provide bon fides and quote a fixed fee for work if you would like us to act on your behalf. It should be inexepensive to resolve your tax problem.

Nigel Lord
Lord Associates
Taxation & Business Consultants
102 Smarts Lane
Loughton
Essex, IG10 4BS
020 8508 1642 & 07769 931852
lordassociates@ntlworld.com