Buying a house before selling the old one CGT

[Easty_E]

Hi, I'm after some advice please?

We are selling our house and downsizing. We are moving to an area where property is going quickly and there is a house that we would like to secure. We have enough equity in our existing house to raise a mortgage to purchase the new house first, to secure it, whilst still trying to sell our current main residence (we have no intention of keeping it, and we need the funds as we wish to be mortgage free).

I think I'm right that, under new tax laws (post April 2020), we will obviously pay 3% extra stamp duty, as it will be classed in the first instance as a second property, but we can reclaim this within 3 years. Our main issue though is the CGT, as our current house has appreciated a great deal, and even after applying allowable deductions of improvements (not maintenance!) & associated costs (solicitors, stamp duty, agency fees etc.), and my husband and I's £12,300 allowance each, we are still left with a fairly large bill, especially as my husband is a higher rate tax payer (I am not). I think we have 9 months in which to sell the house until this applies, but I am aware that sales are currently taking up to 5/6 months to complete, so that wouldn't leave us much of a window in which to sell it, especially if the chain broke along the way (as has happened to us before). Is this a correct assessment of our situation please? I don't think we can claim any Primary Residence Relief and we can't afford to take the risk of a large CGT bill if it doesn't sell & complete within 9 months, is there anything else at all that we could do to mitigate against this risk?

Any advice or guidance would be greatly appreciated, thank you!

[darthblingbling]

What am I missing that makes you think you can't claim PPR? On paper this sounds as if it was your main residence for the life of ownership (albeit there may be a short period at the end in which it won't be)

[Easty_E]

Hi, thank you for coming back to my query.

I assumed that as we will already have bought & possibly moved into our new home, prior to selling our existing one, then that will have automatically become our Primary Residence?

[darthblingbling]

The 9 month rule is deemed occupancy, if you can claim PPR then the last 9 months are deemed to be a period in which you occupied the property and thus can claim PPR for this period. If it takes longer then all it may mean is that your claim is apportioned; it won't invalidate the whole claim.

[Easty_E]

Thanks again, I think I've a bit of an idiot and misinterpreted a couple of articles I read about the doom & gloom and hidden tax traps for those wishing to buy before they sell!

Please could I play on your kindness again and run one last thing past you?

So if, for example, we have lived in the property for 8 years and made a gain (after deductions and allowances) of around £150k, and the sale takes place 12 months after we have bought the new property, then our CGT liability of £42k (@ 28%) would be eligible for PPR of 105/108 months, so would be left with a CGT bill of around £1,167? Apologies if I've got this wrong too!

Thank you for your help, it is most appreciated.

[bd6759]

Your gain is £150,000.

If you sell the property within 9 months of moving out, the whole of the gain will be exempt.

If you sell the property 12 months after you move out, 3 months of the gain will not be exempt.

Using your figures, the exempt gain is 105/108 * £150,000 = 145,834. That means your gain is £4,166. Split between the 2 of you (presuming jointly owned). That is well within your annual allowance.

(You say the gain is net of allowances. If that includes your snnual allowance, take it out. The annual allowance is deducted last after the chargeable gain is computed)

[Easty_E]

Thank you very much for that, that helps a great deal!

[Spotswood]

Hi,

Sorry to reopen an old one... but is this definitely the full picture? As don't you have 2 years to nominate which one is your main residence? If so and you nominate the new house after say 10 months, then when does the 9 months timer start on your old house? And what if you nominate the old house as your main residence? Then there is no 9 month timer....or???? If this is correct then the new house becomes somehow liable upon selling it?...somehow?

I am in a similar situation - slow market but can afford to buy before selling....

cheers for any rapid answer!

Spotswood

[bd6759]

1. The old house is no longer a residence. You have moved out. No election is possible.

2. The 9 months is not a timer. It covers the last 9 months of ownership, but only such periods that are not covered by another exemption. If you sell 6 months after you move out, you only get 6 months additional exemption. In the above example the three months that are not exempt occur between the day he moved out and the day that is 9 months before the sale.

3. If it were possible, you would lose exemption on your new house. Only 1 residence can be your PPR.

[Lambs]

Dear S,

You are right that you do get up to 2 years to decide which of the 2 (or more) residence is your main residence. So there is perhaps an opportunity to refine the calculations. But there are two other points here:

We typically try to avoid the risk of "tainting" the ownership period of the new property, as we do not know for how long it will be owned / how large will be the gain on the new property. We balance this with trying to avoid having to pay tax today on the old property.

But BD's point was that you should be able manage that will still being able to avoid intervening in the natural order: assuming the maths is broadly accurate any net gain from being slightly over the 9-month window should be mopped up by 2 x Annual Exemption - assuming we still have an Annual Exemption by the time that gain is made, of course. It has been halved this tax year and is set to be halved again in 2024/25. (And BD probably wouldn't have known about the slashing of the AE back in 2021

For clarity, the 9-month window looks back from disposal. So messing around with nominations will likely result in overlap and at least partly wasting the 9 months. But if, say, E got to 15 months and still hadn't managed to sell the first property, then he should definitely have taken advice on making a nomination within the 2-year window. Once validly made - but ONLY if so made - then it can be varied at any point later on.

Trust this is useful.

Regards,

Lambs