CGT if you only own 1 Buy to Let and rent yourself

[pennine123]

Hi,
My wife and I own a tiny 2 bedroom flat which we purchased over 2 years ago for £179000 (small £40k B2L mortgage). We think it's worth ~£250000+ now.
The flat has been rented out to tenants from day 1, and we declare the rent against my wife's income (we both pay 40% tax).
My wife and I have been renting ourselves for the last 6 years, and therefore the flat is the only property we own.

We are trying to consider what to do with the flat. It needs quite a bit of work on it, the agent/ tenant are poor and it's quite a distance away from us.
Is there any way to avoid CGT on this property as this is the only property we own. Would we have to physically live in the property in order to declare it as a primary residence for CGT purposes?
If so for how long?

Thanks

[pawncob]

PPR relief is time apportioned, so you can't avoid CGT that way. You'd have to live there for two years to halve the gain.

[jpcentral]

I query the contradiction in the statements:

"My wife and I own ........" and "...... we declare the rent against my wife's income".

For a property owned by husband & wife the income is shared equally unless an election is made to share the profits in a different ratio and the only other option is the share of the property as apportioned by a tenancy in common.

I think you need to revisit your tax returns and probably send in amended returns.

Also PPR is time apportioned but there is also letting relief which is the lower of PPR or £40,000. So, if you live in the flat for one year as your main residence, you will effectively get two years relief.

You will each also qualify for the annual exemption (currently £11,100) so the first £22,200 of any gain is exempt (assuming you haven't made other gains).

So, assuming you have owned the property for exactly two years when it becomes your PPR and the sale value doesn't change, at the end of the third year you will have a gain of about £81,000 (probably less when estate agent & solicitor fees taken into account). Your PPR Relief is one third of that = £27,000. In addition you will qualify for Letting Relief of £27,000, making a total of £54,000. This leaves £27,000 from which you can deduct £22,200, leaving £4,800 taxable.

Extending the length of your PPR will affect the figures but you also said that it had been owned for more than two years - so more precise dates would need to be used.