Quite specific CGT / PRR Query

[Joe B]

I’ve got a quite specific problem in relation to the imminent changes to PRR - apologies if there's another thread that covers this, but I couldn't find an exact match...

This is me:

Jan 2012: bought a flat for £250K (only property in my name, first time buyer, interest-only residential mortgage).
Jan 2012-Mar 2012: refurbishment work.
Apr 2012 – Feb 2014: let flat out to tenants (working overseas Feb 2012 – Jan 2013); includes a period when property was untenanted in summer 2013.
Feb 2014: flat valued at about £400K
Apr 2014: changes to automatic PRR period, from 36 months to 18 months.

My intention was to sell at the 36 month point, after sufficient time using the property as my main residence, to satisfy HMRC as to PRR entitlement. Coincidentally, this is also when the mortgage introductory offer expires.

However…am now concerned that even if I do use the flat as my main residence for, say, 6 months (e.g. months 30-36) before selling at the 36 month point, I will become liable to CGT (under the new rules) for months 1-18 of the period of ownership, if it was not my main residence at that time.

Is this correct?

Presumably, if there is a CGT liability the best solution is to sell sooner rather than later – so that the 18 month PRR period is a greater proportion of the overall period of ownership (!?!)

Grateful for any advice – only stumbled upon the PRR changes this week by accident and my head is spinning from trying to work it all out.

[Peter D]

When do you anticipate moving in and when do you intend to sell the property. Clearly it will be next FY. 6 months residing in the property is not going to secure a PRR claim to HMRC. There is no specified time to acheive this but the quality of residence and your intention is important.
You appear to not understand the 36/18 month change.
Do you own any other property.
Regards Peter

[King_Maker]

Based on the info given, I think you may an uphill struggle to convince HMRC and the courts that the flat would qualify for PPR relief.

[Joe B]

When do you anticipate moving in and when do you intend to sell the property. Clearly it will be next FY. 6 months residing in the property is not going to secure a PRR claim to HMRC. There is no specified time to acheive this but the quality of residence and your intention is important.
You appear to not understand the 36/18 month change.
Do you own any other property.
Regards Peter

Peter (and KingMaker), Many Thanks,

I’ve either not explained something very well, or am even more muddled than I thought...

My understanding was:

1) PRR is granted in respect of the sale of a property which has, at some time, been the owner’s main residence and that there is no defined ‘qualification period’ of residence (hence, six months occupation as a main residence would give an entitlement to PRR, provided that it is properly substantiated – council tax, utility bills, etc).

2) I got from the HMRC ‘Helpsheet’ that:
The final 36 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point.

3) The significance of the change from 36 months to 18 months is that PRR was automatically granted for the last 36 months of ownership of a property that has been a main residence and will now only be granted for the final 18 months.

4) On the old (36 month) rule, I could own a property for 36 months, use it as my main residence for a period of time and sell it at the end of the 36 months and incur no CGT liability. On the new (18 month) rule, I could do the same, but would only get relief from CGT for the final 18 months of value appreciation.

I don’t own any other property.

What am I missing?

[Peter D]

Just moving in and then putting it on the market and selling in 6 months time is not going to convince HMRC that the property was your genuine main residence. 18 months might ring the bell. Please answer the questions I put to you. HMCR are aware of your rental business and not going to grant PRR without looking into you claim. They have the right, and do deny PRR in such cases. Regards Peter

[Joe B]

Just moving in and then putting it on the market and selling in 6 months time is not going to convince HMRC that the property was your genuine main residence. 18 months might ring the bell. Please answer the questions I put to you. HMCR are aware of your rental business and not going to grant PRR without looking into you claim. They have the right, and do deny PRR in such cases. Regards Peter

Hi Peter,

In response to your question on timing, I was thinking of moving in this summer and selling (i.e. putting it on the market) early next year: hence about 6-8 months actual occupancy, out of 3 years owning the flat. I was also unable to live there for 12 months while living abroad for work, which might also count for PRR purposes, according to the 'Helpsheet'(?)

I confess that if the HMRC guidance states that there is no set qualification period, then requiring 18 months in practice sounds a bit steep, but if that is what they're looking for...

The flat is the only property that has ever been in my name and I do pay tax on the rental income; but it was bought as a residential purchase on a residential mortgage. In effect, due to work and other personal circumstances, it has just taken me a long time to get round to living there.

I'd thought that the whole point of PRR was that a house which was the only property you owned and had been used as your main residence (albeit not for the whole time) would be entitled to relief from CGT, but you seem to suggest that this is not the case - or am I misunderstanding the point that you are making?

[bd6759]

If it is your intention to sell the property (ie you are moving in only to get the PPR relief), you will not get PPR relief. The property has to be your home, and that means more than just living there.