Capital gains various questions

[wooody]

Hello,
I have a derelict barn which I bought 7th November 2003. I intend to renovate it next year, 2007. If I sell it in 2008 I would pay income tax on any profit. If I live in it as my principal residence then would I be exempt? What then happens to my existing property should I wish to make it my PPR once again after selling the barn, is the possible liability for CGT only for the time when when it was not my PPR, how is this calculated? Could somebody perhaps advise on when best to declare the PPR and for how long, etc. My partner and I are not married, perhaps this is useful? In addition are there any advantages to renting, or holiday letting, for a short period before selling? If there is a situation where the final three years gain is deducted does the fact that the building was a derelict for some time have any bearing?

[ivorproblem]

You are likely asking for trouble if you elected for the barn to be your new home then later sell it and then move back into your own home. What would you say to the Revenue as your reasoning behind the sequence of events if you got picked up for enquiry aside from the truth namely to avoid paying tax ? You do not state your reasoning behind the purchase of the barn in the first place ? Did you buy it with a view to making a financial gain of some sort ? Presumably you must have as you dont wish to sell your current home. If you bought it as development opportunity then strictly it should be case 1 trading as you would be no different to a builder who would have bought it for a similar reason.However if this was a one-off then you could likely return it as CG. There is a huge difference between tax avoidance ( which is legal ) to tax evasion ( which is illegal ) so I would be wary of attempting any course of action which could be construed as the latter.

[King_Maker]

A couple of comments in repect of any CGT exemption:

1. The period between acquisition and completion of the renovation is unlikely to be Exempt.

2. You will need to occupy it as a residence (perhaps 12 months or more), and make any relevant Nomination if you have more than one residence within the 2 year Time Limit.

Have you read the Inland Revenue's Help Sheet IR283 which deals with CGT for private residences?

It is downloadable from their website.

http://www.hmrc.gov.uk/helpsheets/ir283.pdf

[wooody]

Hello,
Thanks for the replies so far.
The barn was purchased with the intention of renovating and living in and selling the existing property. However, I am keen to gather information so that all options can be considered.
I would guess that many people have two properties and allocate the PPR as required. Is the fact that it is derelict indicative of an intention to make a profit any more than buying an existing house, I still have to pay to renovate it.
The building would have increased in value along with every other property in the area but its value would jump considerably when the renovation is complete, ie next year, is there any relevance to this with regard to CGT? If the period between buying and renovating is chargeable then perhaps this would be relevant.
I am assuming that if a property is not a PPR for say 12months then only thta 12 months is potentially subject to CGT, is this correct?
Thanks for any replies.

[King_Maker]

Unfortunately, the CGT exemption is for a "Residence", not purely a "Property" - the two words are not synonymous for tax purposes.

Have you read IR283?