Can I avoid CGT after Buy2Let for 1 year?

[ntyce]

In Oct of 2001 my girlfriend bought a 1 bed flat and lived in it until about Oct 2003. We got married in July of 2003 and we live together at my parents place until we find a house to buy. Since Oct 2003 the flat has been empty as we have been renovating it in a mind to either rent or sell.

If we lett the flat for a year would we have to pay capital gains tax? I have heard that you can lett your property for upto 2 years without paying CGT is this true?

Thanks,
Tyce

[funcrusherbill]

I am only an amateur but I think you should be OK. If you trawl the web I think you'll get confirmation: start with the Inland Revenue site.
Basically it sounds like the flat must have been and still is your *principal private residence*, so if you sell now it's tax-exempt. I think also you will learn that as it is your home you can now let it for up to 3 years without losing the exemption. This is because the last 3 years of ownership will be treated automatically as owner-occupation whatever. If you let for the last 4 years, then one year's gain is chargeable (but this may be reduced or wiped out buy other reliefs. This means that if you have bought another home you will get relief on both homes for up to three years.

hope this helps. Funcrusherbill

[David Eckles]

Hope you do not mind me adding to this subject.
I have a but2let flat for now five years.
I am tryung please to find out what the tax rules are if I now designate this property as my prime residence. As then after the apporiate period sell this propery and not having to pay CGT I have derived a rental income for all the back period

If have scoured the Inland Revenue web site guide line by cannnot find this info regards David

[funcrusherbill]

Generally you have to live in the house before you can claim PPR (I think there maybe exceptional exemptions eg armed forces) If you live there a short period after renting and before you sell then 3 year's exemption can probably be claimed I think. Try The Landlord Zone website.
Funcrusherbill

[David Eckles]

Thank you funcrusherbill for the advice I found Help sheet line IR283 but it is complicated and yes it does refer to 3 years however I am sure my accountant told me that you can designate a property as your main residence, which was originally used to be But2let and then after six month living there, there is a possibility for lower CTG I will find out more

[ntyce]

Thanks for your answers to my original question. I have read that 3 year rule as well would this also apply to the fact that we are looking for a house so by the time we come to selling the flat we would have another main residence. Does this rule still apply if we have two properties? I would think it would still apply as at some point it was my wife's main residence? Can someone please enlighten me with anything that they know.

Thanks,
Tyce

[accountant@uktaxshop]

Tyce,

The above amateur diagnosis is along the right lines.

By your wife living in the property up until October 2003 full Principle Private Residence will have been established.

This will then enable the final 3 years of ownership to be exempt from any CGT even if you donÂ’t live there. (ie until October 2006).

Moreover you will also be entitled to lettings relief at upto £40,000 (and each if you hold the property jointly – your wife’s allowances are available to you in full) which should extend the "CGT free" period by a few more years depending on the property value.

David - you can do something like this. Depending on your circumstances and your attitude to risk you would need to live in the property for at least 3 months, and probably 6+ to establish PPR. As above with lettings relief and your personal allowance you may remove all of your gains. It will come down to crunching the numbers, and looking at how easy it will be to convince the IR this is your main residence.

For both Tyce and David, this is the sort of planning I do with clients on a regular basis for very modest fees. If you need some formal assistance then please get in touch.

Regards,

James Smith
Chartered Accountant
www.jamesesmith.co.uk
01284 764436