CGT liability on sale of second home?

Petec_2

Hi, need a bit of help & guidance re possible CGT liability.

My wife and I wanted to restore our home (lived in 15 years) but the restroation meant breaking up floors, replacing roof and extending. So we were told we'd have to move out.

In Sept 03 we bought another house (house2) for £220,000 to live in whilst work on our home was completed BUT it was derelict so we spent 9 months (and £80,000) restoring and extending house2 (work completed in Dec 04).

From June 05-July 06 we lived in house2 whilst work on our home was undertaken. Our son remained in house2.

We have received an offer of £375,000 for purchase of house2 but I need to understand the CGT liability ie

1/ Does the cost of purchase for CGT purposes include the cost of necessary refurbishment and extension plus can we include any other costs eg buying & selling professional and legal fees?

2/ Can we deduct the year we lived there from any CGT calculation or would the taxman then just turn his eye on our home for the period we lived in house2?

3/ What is the '3 previous year' rule and would this help us?

4/ Is this complicated enough to get a professional advisor involved or would that not achieve any better result?

All help gratefully received !!

johnllew

CGT? There is an argument that you are property developing and that any gain is subject to income tax.

silvercar

My personal opinions only.

1/ extension and improvements could be included but not repair and maintenance. So if you already had a bathroom and merely brought it up to scratch then its not an improvement; if you improved it (maybe added a shower unit etc then yes include it. I would argue that if the upgrades were so troublesome that you had to move out, then they should be included. I think all the fees can be included.

2/ You can deduct the year you lived there and the time you were restoring it (as you then lived in it) and the last 3 years of ownership (as you did live in it as your PPR at some point).

3/ I think you mean the rule that allows the last 3 years of ownership to be exempt from CGT if you have ever lived in the property as your PPR.

4/ See what advice you get on here and then decide. It probably isn't that complicated.

For your main home, as your were restoring it and lived there before and after, the period that you weren't there still counts as your PPR.

More info here:
http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Example 6 illustrates the point about refurb a property before it becomes your home, that can be applied to both properties.

silvercar

johnllew wrote: »

CGT? There is an argument that you are property developing and that any gain is subject to income tax.

With a tax saving hat on, I would say that the intention was to live in the property hence the refurb. Having actually lived in it as your Principal Private Residence the arguement that it was property developing is weakened.