Avoiding Capital Gains Tax??

madchester

Hi all new user here!

Having just bought my first house at the age of 25 which is a bit of a wreck! I am planning on doing it up and then selling it making a profit, and moving onto another to do the same. As each house I renovate will be my main residence will I be except from capital gains tax? Taking into account that this is not my full time employment.

Is there a time limit of how long I have to live in the house or a restriction on how many times I can do this?

Thanks in advance. Richard.

Mrs_pbradley936

If it is your only home you will not have to pay Capital Gains Tax. If you were to do it frequently you may be considered to be running a business. If you find that you are making a lots of money by doing it, do not be afraid of declaring yourself as running a business because you can then claim back any VAT on building supplies. See how you go, you may do it once or twice and think "never again".

donglefan

See IR leaflet - it can be complex. You must live there at some point. You have one year at the start you can be exempt from living there, if it's not habitable, exceptionally extendable to 2 years. Then provided at some point you have lived there, you have the last 3 years CG exempt, so if just fixing it up, you should be fine.

madchester

Thanks for the response.
So to clarify as long as the houses are my main residence I can do up as many as I like and sell them making capital gains free profit.

for example if I bought did up and sold 4 properties over 1 year (making a profit) is this acceptable or would it be classed as a business?

Pennywise

madchester wrote:

Thanks for the response.
So to clarify as long as the houses are my main residence I can do up as many as I like and sell them making capital gains free profit.

for example if I bought did up and sold 4 properties over 1 year (making a profit) is this acceptable or would it be classed as a business?

From another recent thread:-

WHA wrote:

One of the conditions of the principal private residence relief is that the property must not have been purchased with the intention of making a profit. The tax inspectors can (and often do) refuse principal private residence relief where there is a clear intention to profit, i.e. where the property is renovated and sold on quickly and where there is a quick succession of such purchases and sales.

Purpose of PPR relief as per HMRC Manual CG64200 - "The purpose of the relief is to enable a person to replace their existing home with another home of similar value by ensuring that the proceeds of sale of the old home are not diminished by a charge to Capital Gains Tax."

As per HMRC Manual CG65200 - "The purpose of private residence relief is to relieve gains arising on the disposal of a persons residence so that the whole of the disposal proceeds are available to be used to buy a new residence of a similar standard. It is not intended to relieve speculative gains or gains arising from development."

See also HMRC Manual CG65202 and CG65203 - no relief is due where a dwelling house is acquired wholly or partly for the purpose of realising a gain from its disposal or where expenditure in incurred on a dwelling house wholly or partly for the purpose of realising a gain from its disposal.

So if you have a succession of buying property, doing them up whilst living in them and then selling for a profit, you aren't automatically eligible for principal private residence relief, especially if you are working up the property ladder each move.

Doing 4 in a year would almost certainly be classed as a business and taxed accordingly.

gallygirl

Doing 4 in a year would almost certainly be classed as a business and taxed accordingly.[/quote]
Doing 4 in a year would probably kill you and then you wouldn't care about CGT...... Seriously, buying and selling 4 houses in a year would be nigh on impossible without doing any work as well. Everything takes longer than you think, any more than 1 would be good going, bearing in mind you'll be living there as well.

Ian_W

madchester wrote:

Thanks for the response.
So to clarify as long as the houses are my main residence I can do up as many as I like and sell them making capital gains free profit.
for example if I bought did up and sold 4 properties over 1 year (making a profit) is this acceptable or would it be classed as a business?

I think on that scale, or even less, there's a real chance that HMRC would consider you to be trading. In which case CGT [and the potential to claim PPR relief] wouldn't be applicable, they'd be after income tax on the profits of your business.
On a smaller scale that's what they're reported to be doing with ebayer's, and it will be so much easier to prove with property when they have very close links with the Land Registery.

donglefan

1. You can only have one ppr at one time, so you have to do this serially, although there is a loophole:
2. You can do up one and be into the next, provided you sell the first within three years of acquiring it. In fact if market conditions favour letting and you don't need the capital, you can buy residence A, live there yourself for say 6 months while you fix it up, buy residence B (your new ppr), then let residence A for two years and then make sure you sell within 6 months, so that your 3 years exemption is fully used.