Primary Residence, relatives and the house next door.

[BigGeorge]

Hi,

I would like to buy the house next door which has come up for sale recently. Its a detached property but I could just about reach its outside wall with a broom handle from the edge of my property. I say that because it would be possible to join them together - though not too practical (just in case it makes any difference). We share the same driveway and parking. The house we want to buy was originally an outbuilding/barn to the house we live in now and was split about 10 years ago in case that helps.

My intention is to use its garage as a store for some family furniture (probably not important but i thought id mention it) while we make the house rentable - we are planning to take a year to completely refurbish it. Once complete, we intend to rent it out until my father in laws heath deteriorates to the point that he would feel more comfortable living close to us. At this point - we plan that he sells his house and uses whatever funds he makes from the sale to pay off the mortgage as a "gift" to us. Any remainder available for him to enjoy as he wishes and possibly for his care. This could happen in 5 years hence or maybe more.

During his stay in the house next door, we would partially move in with him - giving him space but affording him family care in the right measures. Thereby using both properties as our "home".

On his demise - we would probably sell the house. My thinking is that for a proportion of the time we have the house it will be empty, for another proportion it will be let out and for the final portion we will live in it as part of our own house with a relative. How would CGT be worked out on this arrangement?

Also on this final stage where we are using both properties - can we declare both as our primary residence as we will be using them combined as our home? Effectively joining them back together.

Many thanks for any help

BigG

[AvocadoK]

we would partially move in with him

A lot hangs on what this would mean in practice. For example, if you were going round on a regular and frequent basis, to help with meals, have a chat, watch TV together....but go back home to your own bed, then I do not consider that Dad's house could be described as your 'residence.' Leading case law describes a residence as "the place where an individual ‘sleeps and shelters and has his house " (Fox v Stirk). It is not quite that simple, of course - there are lots of other cases.
If it does not fulfil the tests of a residence, there would be no possibility of electing it to be your main residence, and the whole gain would be taxable.

If both properties did qualify as your residence, you could (under current rules anyway) elect for Dad's house to be treated as your main residence. This would also allow a further claim for exemption under the lettings rules - the lower of the PPR gain and £40,000 can be claimed as a further exemption on top of the PPR gain. Husband and wife must have the same main residence.

Note that in any period where one property is your main residence, the other is chargeable, except for the last 18 months.

In that final period where you use both properties, I do not consider that you can treat them as one. If objectively there are separate dwellings, the way in which you use them will not change that fact.

HMRC has published proposals to abolish the main residence election, which are currently under consultation. Abolishing the election would create hundreds of disputes as to which residence was "main," disputes which are currently avoided by the simple expedient of an election. It would be an incredibly foolish move by HMRC. I am therefore confident that the government will force it through next April!

AK

[LozaACCS]

As things currently stand there are 2 separate properties, this will involve issues and elections (as you suggest) regarding main residence relief.
There may also be issues with Pre Owned Asset Tax when FIL moves in because the arrangement will meet the contribution condition, an exemption may however be available under FA 1986 Sch 20 (6)(1)(b), I would emphasise that this paragraph details a change in circumstances which were unforeseen.
You could consider acquiring the property and changing it back to one property, this may make PPR planning easier.
There might alternatively be some merit in FIL buying the second property depending on his IHT exposure, this might allow him to gift it to you on death, there might however be issues with care home fees.
Again you could buy the property as joint owners with your FIL (either as joint tenants or a tenancy in common arrangement.

I would suggest you instruct a local solicitor/tax adviser to assist you in your planning.