Capital Gains Tax

mayboy

Hi. I am considering selling my BTL next year and would appreciate some advice about liability for capital gains tax. My wife and I have owned the property for many years and it has been largely tenanted throughout that time (we have never lived in it.) I keep reading that if we used the BTL as our main residence I could reduce my CGT liability. If this is the correct, can someone kindly advise how this is calculated, and would staying in it for a few months before I sell make any difference to my CGT liability ?

fengirl_2

If you use a property as your main residence, the period during which it is your main residence is exempt from CGT when you come to sell. In addition, the final 3 years of ownership are exempt (assuming they are in addition to the years you lived in it). In addition, there is a letting exemption of up to £40k on the chargeable gain. The length of time of the use of the property is not relevent in deciding whether its your mian residence, it is the quality of the occupation, ie you would have to show, if challenged, that all your personal dealings with banks, doctors, schools, etc, etc were from the new property, that you had actually abandoned your previous property, just as anyone would if they had moved to a new house.
However, if you own the house you are living in now, don't forget that the period during which you do not live in it (while you are living in the let house) would be liable to CGT when you come to sell it.

00ec25

Fengirl beat me to it again

just to supplement what she says if you really do decide to commit to genuinely shifting your principal residence to the ex BTL as she describes, then because (I assume) you have held 2 (or more?) properties for more than 2 years, your change of PPR status is then assessed on what is described as a “matter of fact”. Hence Fengirl’s insistence you must demonstrate the fact it is now your home.

Post back here if you have held the 2 properties for les than 2 years as there is a specific alternative if that is the case.

if you want to understand the mechanics of the CGT calculation for a property which has both been your PPR (at sometime) and also let out, read my example at #8 on the message I posted yesterday here, amending it to have a PPR period of 36 months only with the rest of the time as a letting.

from a tax planning pihnt of view living in the BTL would be advantageous for a few months as you would then get 36 months exemption from CGT at the expense of having to pay CGT on your "real" home for the periuod you actually lived in the BTL. Obviously therefore you will gain overall if you live in the BTL <36 months and neither the relative rate of gain between the two properties in that time is not hugely different, nor is the absolute gain of the "real" home too big.

mayboy

Many thanks for your words of wisdom. It is much appreciated.