Avoiding Capital Gains Tax on property

Sumostar

Does anyone know how long you need to live in a property as your main residence (that was previously rented out) to avoid paying CGT?

I have a friend who is selling both her main residence and a property that is being rented out. If she were to sell her main residence and move into the second property for 6 months would she still have to pay CGT when she moved out?

Thanks y'all

mi-key

She will have to pay CGT on one of them - the Inland Revenue are getting pretty hot on people trying to evade CGT by moving into second properties ( or pretending they have moved there ).

Not a lot of people know this, but it is worth remembering if you try and fiddle your way out of tax :

When any amount above a certain figure ( and it isnt that high ! ) is paid into your bank account, such as the profit you would make on a house, your account is flagged and the info automatically gets sent to the IR - they can then look at this and if they suspect it is from the sale of a house or similar ( e.g. if you dont regularly get these sort of amounts paid in, and they already know where it comes from and its being taxed correctly ), the next thing you will get is a letter through the door.

Tell your friend they are MUCH better off talking to an accountant and asking how they can MINIMISE their CGT liability - they will still have to pay something, but it wont be the full amount, and they wont have the risk of a huge fine or jail sentence in the future if they get caught.

ReportInvestor

CGT would have accumulated on her second property until the time that the Revenue recognised it as her second residence.

Otherwise this scam would cost the taxpayer £billions over time.

I guess that the LibDems have lost the buy-to-let vote (if they ever had it) by proposing to reduce the annual CGT allowance to just £1K and also to abolish taper relief,, which will hit all you landlords where it hurts.

Pennywise

Sumostar wrote:

Does anyone know how long you need to live in a property as your main residence (that was previously rented out) to avoid paying CGT?

I have a friend who is selling both her main residence and a property that is being rented out. If she were to sell her main residence and move into the second property for 6 months would she still have to pay CGT when she moved out?

Thanks y'all

It all depends on how long she has owned the property and how long it had been rented out. Moving into the house as her principle private residence (assuming that it the truth and they really are living there) will REDUCE the capital gains tax and may eliminate it if it had not been rented out for long. However, if it had been rented out for say 10 years, and they only lived in it for say 6 months, there will still be a gain that will probably give a CGT liability. There is no easy way of calculating the CGT without doing the sums properly. An accountant would certainly be able to prepare some illustrative tax liabilities with or without living in it and then comparing a long or short period of living there.

Sumostar

She has owned the second property for over 10 years and has been renting it out for most of that time.

Oh well, just a thought....

Thanks for the replies.

mi-key

Not jumping on her particularly, but why do people who invest in property try to do this ?

If I ran a business for 10 years ( which is what your friend has done ) and it made a profit, I wouldnt expect to not pay any tax ?

I imagine if she bought ten years ago, she has also been making a profit from the rent coming in ( this is assuming that the current rent is probably a good bit more than the mortgage payments ) - if she hasnt been declaring this, when she sells the IR will want to know why she hasnt filed a tax return each year.

In your friends case, I imagine the property has doubled or tripled in value since she bought it, so shes going to make a lot of money by selling, so trying not to pay the tax as well is taking the p!55 a bit !

If property was truly a way of making tax free money EVERYONE would give up work and just rent places out to people.