CGT help please – two homes, 15 months overlap

malocao

Hello all,

I’m hoping that someone can please clarify what I can/should do to manage a potential CGT liability. I’m reasonably clued up on tax and law, but I’m not a professional.

Wife & I own two houses in the same neighbourhood.

House A, bought in June 1998. Between then and May 2009 we lived in it, except when I was working overseas. Between Feb 2008 and May 2009 it was for sale, without success. Since May 2009 A has been rented out.

House B, bought in Feb 2008. Between then and May 2009 we had it renovated and extended. During that time we used it regularly for some purposes, eg using the garden and the kitchen (and we have bank statements and utility bills addressed to , but most of our possessions remained in A, and we didn’t stay in B overnight. In May 2009 we moved into B entirely.

My challenge is to prevent/minimise CGT on B, if/when we sell it (although we have no such plans right now).

I’m not too worried about CGT on A – we don’t plan to keep it long term, so with residence relief and letting relief, and realised losses on non‑property assets, CGT should be minimal.


My queries are:

1. When did B become our residence for tax purposes, so that we can nominate it as our principal private residence (PPR)?
2. If B wasn’t our residence until May 2009, can we still get it treated as such, under Extra Statutory Concession (ESC) D49?
3. Could we agree with the Revenue now on these issues, or must we wait until B is sold (perhaps many years from now)?

I read the rules as follows – do others have different views/experience?

1. We can nominate B as our PPR with effect from the first date that it was our residence, in the normal sense of that word.
2. But we can’t make B into our residence by means of a nomination. If B only became our residence in May 2009 based on the facts, then we can’t nominate it.
3. In that case, under ESC D49, B might still be deemed our only or main residence, for the period since we bought it. But as that period was more than 12 months, ESC D49 would only apply if for “good reasons outside our control” we couldn’t occupy B within 12 months of buying it.

The “good reasons” would be one or both of the following – are they likely to be good enough?

1. We couldn’t finish the alterations on B within 12 months. We needed the whole time between Feb 2008 and May 2009: 6 months to choose an architect, get planning permission, choose a builder, and wait for his previous job to finish; plus 9 months to carry out most of the work, so that moving in was practicable. The last of the work was done after we moved in.
2. We tried and failed to sell A for more than 12 months. It was for sale continuously from Feb 2008 until our tenants moved in. We had no offers to buy, and for a 6‑month period in mid 2008 we had almost no viewings.

Many thanks.

fengirl_2

Need a bit more info. You didnt live in house A while you were overseas. What period was that and was the property let while you were away?

Pennywise

My understanding is that you can make an election to "nominate" a home as your PPR within two years of acquiring another property. This "election" supercedes all the other criteria for determining a PPR. So as long as you make a claim to HMRC saying that B is your PPR within two years of buying it, then B becomes your PPR from whatever date you state on the election. In these circumstances I'm not sure why you are seeking for an ESC to apply - it seems you can achieve what you want to do with a simple PPR election.

fengirl_2

But if property A has been let, you may not even need to do that.

malocao

Thank you both for replying.

fengirl wrote: »

Need a bit more info. You didnt live in house A while you were overseas. What period was that and was the property let while you were away?

Time overseas was Sep 2000 to Aug 2006. Yes, House A was rented out during that time, except for a 6 month void about 2003/04.

Pennywise wrote: »

My understanding is that you can make an election to "nominate" a home as your PPR within two years of acquiring another property. This "election" supercedes all the other criteria for determining a PPR. So as long as you make a claim to HMRC saying that B is your PPR within two years of buying it, then B becomes your PPR from whatever date you state on the election. In these circumstances I'm not sure why you are seeking for an ESC to apply - it seems you can achieve what you want to do with a simple PPR election.

Here's how I read the TCGA: [emphasis added]

222 Relief on disposal of private residence
...
(5) So far as it is necessary for the purposes of this section to determine which of 2 or more residences is an individual’s main residence for any period—
(a) the individual may conclude that question by notice to the inspector given within 2 years from the beginning of that period

I think this means:

• we can make a nomination for a period where we had multiple residences
• but for a period where we only had 1 residence, we can't nominate anywhere else - it is not "necessary to determine which" of only 1
• and whether we had 1, 2, or n residences on any given date depends only on the facts - ie what use we made of each property.

I definitely want to nominate B as main residence, if possible. My concern is that, from Feb 2008 to May 2009, B might not count as a residence based on the facts; in that case A would have been our only residence, so a nomination of B might not be valid.

If anyone knows why this interpretation is wrong, or right, please comment ...

Thanks again.

Nosht

malocao wrote: »

Hello all,

I’m hoping that someone can please clarify what I can/should do to manage a potential CGT liability. I’m reasonably clued up on tax and law, but I’m not a professional.

Wife & I own two houses in the same neighbourhood.

House A, bought in June 1998. Between then and May 2009 we lived in it, except when I was working overseas. Between Feb 2008 and May 2009 it was for sale, without success. Since May 2009 A has been rented out.

House B, bought in Feb 2008. Between then and May 2009 we had it renovated and extended. During that time we used it regularly for some purposes, eg using the garden and the kitchen (and we have bank statements and utility bills addressed to , but most of our possessions remained in A, and we didn’t stay in B overnight. In May 2009 we moved into B entirely.

My challenge is to prevent/minimise CGT on B, if/when we sell it (although we have no such plans right now).

I’m not too worried about CGT on A – we don’t plan to keep it long term, so with residence relief and letting relief, and realised losses on non‑property assets, CGT should be minimal.


My queries are:

1. When did B become our residence for tax purposes, so that we can nominate it as our principal private residence (PPR)?
2. If B wasn’t our residence until May 2009, can we still get it treated as such, under Extra Statutory Concession (ESC) D49?
3. Could we agree with the Revenue now on these issues, or must we wait until B is sold (perhaps many years from now)?

I read the rules as follows – do others have different views/experience?

1. We can nominate B as our PPR with effect from the first date that it was our residence, in the normal sense of that word.
2. But we can’t make B into our residence by means of a nomination. If B only became our residence in May 2009 based on the facts, then we can’t nominate it.
3. In that case, under ESC D49, B might still be deemed our only or main residence, for the period since we bought it. But as that period was more than 12 months, ESC D49 would only apply if for “good reasons outside our control” we couldn’t occupy B within 12 months of buying it.

The “good reasons” would be one or both of the following – are they likely to be good enough?

1. We couldn’t finish the alterations on B within 12 months. We needed the whole time between Feb 2008 and May 2009: 6 months to choose an architect, get planning permission, choose a builder, and wait for his previous job to finish; plus 9 months to carry out most of the work, so that moving in was practicable. The last of the work was done after we moved in.
2. We tried and failed to sell A for more than 12 months. It was for sale continuously from Feb 2008 until our tenants moved in. We had no offers to buy, and for a 6‑month period in mid 2008 we had almost no viewings.

Many thanks.

Going by my lawyer's recent advice (Scotland) to me.House B became your main residence when you moved in in May 2009.You have 3 years from then to sell house A, as it WAS your main residence, before CGT kicks in.Remember that you are only liable for CGT when you sell, so if you rent it out then this date is delayed, forever if need be.If keeping houses it might be a good tax efficient way to put them into a trust then never pay tax again.Regards,N.

malocao

Nosht wrote: »

Going by my lawyer's recent advice (Scotland) to me.House B became your main residence when you moved in in May 2009.You have 3 years from then to sell house A, as it WAS your main residence, before CGT kicks in.Remember that you are only liable for CGT when you sell, so if you rent it out then this date is delayed, forever if need be.If keeping houses it might be a good tax efficient way to put them into a trust then never pay tax again.Regards,N.

Thanks Nosht,

But my main concern is CGT on the new house (B) if we don't get residence relief for the 15 months before May 2009.

Regards

p00hsticks

malocao wrote: »

But my main concern is CGT on the new house (B) if we don't get residence relief for the 15 months before May 2009.

Has the value of the property really risen that much between Feb 2008 and May 2009 as to make this significant ?

My (admittedly not detailed) understanding is that CTG is only going to be payable over this period if you've actually made a (sizeable) gain ?

malocao

jimmo, many thanks indeed for your reply - immensely clear and helpful.

p00hsticks, thanks also - but I'm certain this isn't how CGT works. The whole gain between Feb 2008 and eventual sale date will be split between non-residence and residence, on a per-day basis. So the value in May 2009 will be irrelevant.

Regards

malocao

A follow-up question, for jimmo or anyone else who knows:

We can create a file of evidence, supporting "good reasons" why ESC D49 should be extended. We will probably do that now, while it's all fresh. But what should we then do with the file?

If we send it to HMRC now, will they acknowledge it and put it away, or give us a decision/view in advance of a sale, or pick holes in our case for use later on when the house is sold, ... etc?

Or should we keep the file to ourselves until the house is sold?

Thanks

malocao

jimmo, thank you again, I will do that.

You're right, I already knew that working overseas doesn't affect the house A position, because we lived in it both before and after our ex-pat years.