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Where Taxpayers and Advisers Meet

CGT on second home and PPR help needed

Yat182
Posts:9
Joined:Mon Apr 26, 2021 11:26 am
CGT on second home and PPR help needed

Postby Yat182 » Mon Apr 26, 2021 11:43 am

Hi All,

Hoping someone can please help me regarding a CGT query, and specifically re Private Residence Relief


So I grew up with my parents in House A for most of my life.

In 2005 my parents moved to House B and I solely lived in House A.

In 2011, my parents gifted me House A.

Since then I have both lived in House A as my main residence for some of the time, and other times lived in House B to look after my parents when they have needed help and care.
During those times I have rented out House A as follows:

2005 to 2010 - Lived there as my main residence
2011 - Gifted to me
2010 to 2014 Rented out
2015 to 2019 - Lived there as my main residence
2020 to current - Rented out.

I now wish to sell this property, but am finding the rules re: CGT and PRP very complex - I am a higher rate tax payer - but how would the proportion of PRP apply to CGT here? I dont own any other property and currently live with my parents.

Many thanks in advance for any help

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm

Re: CGT on second home and PPR help needed

Postby Jholm » Tue Apr 27, 2021 9:42 am

Start the dates for PPR from when you owned the house - the period before is N/A.

PPR basically gives relief, apportioned in line with the time owned versus the time occupied.

Since ownership, you had 4 years rented, 4 occupied and let's say another 2 rented prior to sale (9 months of which prior to sale can be deemed occupied according to the rules).

Total owned = 10 years
Total occupied = 4.75

PPR relief would be 4.75/10 x (CALCULATED GAIN)

You cost for CGT would be the value when it was transferred to you in 2011, plus any capital improvements.

As a HR taxpayer, CGT rate is 28% for residential property.

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm

Re: CGT on second home and PPR help needed

Postby Jholm » Tue Apr 27, 2021 1:02 pm

As a second, more administrative point, if your calculation means that tax will be due (which I expect might be the case), you will need to complete a UK Property return and pay the tax within 30 days of the completion date.

The details of this return will also need reporting on the tax return for the year.

Yat182
Posts:9
Joined:Mon Apr 26, 2021 11:26 am

Re: CGT on second home and PPR help needed

Postby Yat182 » Tue Apr 27, 2021 5:36 pm

Thank you so much JHolm - I appreciate your help.

You mentioned that "As a HR taxpayer, CGT rate is 28% for residential property"

So technically I am a Hgher rate taxpayer, but for the last 2 years I have arranged salary sacrifice with my employer so that my salary is now just below the 40% (£50,188) income tax threshold. Would this allow me to pay CGT at the lower 18%? Or is this behaviour "frowned upon" by HMRC and they would object to this?

I increased my salary sacrifice in to my pension 2 years ago with this very scenario in mind.

Many thanks

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm

Re: CGT on second home and PPR help needed

Postby Jholm » Wed Apr 28, 2021 9:49 am

The capital gain will sit on top of your other income, meaning whatever is left from your basic rate bracket is available for CGT at 18% but higher rate tax at 28% will be due on the 'slice' above the basic rate band.

Yat182
Posts:9
Joined:Mon Apr 26, 2021 11:26 am

Re: CGT on second home and PPR help needed

Postby Yat182 » Wed Apr 28, 2021 11:28 am

I see what you mean - I guess that is fair to stop any kind of big cliff edge for those earning £50,000 (18% CGT) and those earning £52,000 (28% CGT).

That's made things a lot more clearer - thank for that.


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