IHT and primary home

[temple]

An elderly couple have reached the age where living in their house with stairs and a garden is an increasing burden. They have owned a buy to let flat for many years and now have in mind the possibility selling their present house and moving into the buy to let flat as their only and primary home.

Their will currently bequeaths their home to their children to take advantage of the increased IHT allowance for those who leave their home to their children.

Would the fact that the flat was once a buy to let preclude it from ever being recognised as their primary home, and is the safest course of action to sell both properties and buy a new flat.

[maths]

Would the fact that the flat was once a buy to let preclude it from ever being recognised as their primary home?

No. If they move in and make it their home, on any future sale private residence and indeed lettings relief will be avaialbake.

[temple]

We have been advised that the normal exemption from CGT on a primary home would be limited if we moved into our ex buy to let as our main home. Has HMRC issued any guidance on the calculation?

[AnthonyR]

The period where the property was let out will not qualify for relief, so the gain during that period will be subject to CGT (less lettings relief), the gain going forward will be exempt, including the final 18m of ownership.

However, this is only relevant if they sell it during their lifetime, if they die still owning the property the CGT will effectively be lost and the children will inherit at market value.

[maths]

If you move into the buy to let and make it your home, from that date until sale in the future no CGT will apply to any gain made on a future sale attributable to this period.

With respect to the period which it has been let so-called "lettings relief" up to £40,000 of relief will in principle be available.

Is the legal title held in joint names and has each spouse a 50% beneficial interest in the property?

If you supply original cost; say today's market value and how long property held and let out (rough figures) i can do a quick calculation re any CGT charge.

[temple]

Very much appreciate of the offer of a calculation.

It was bought for £41,000 in June 2005 and it has been constantly rented out since that date. We have never occupied the property at any time

Its present valuation is £135,000.

[maths]

I have just re-read my earlier posts. I seem to have been thinking about any CGT on a lifetime sale of the flat in which you are considering moving. If you did sell soon after moving in there would be quite a large CGT charge.

However, I note that you intend to leave the flat in your will; in which case (as Anthony R above points out) there will then be no CGT as CGT doesn't arise on death.