Capital Gains Tax - Dividing House

fargo1968

Any accounts that may be able to help on this one - my current accountant is struggling somewhat .... I have just purchased a large house that was previously 2 semi-detached properties. My intention is to move into it as my Principle Primary Residence. I will then redivide it into 2 dwellings and live in 1 half whilst renovating the other. I will then move into renovated half and sell the first half that I lived in. What is my best way to reduce/avoid CGT? (I will also get married in July 07 - wife can/cannot be included in equation pre wedding if necessary). Thank you in advance, Steve.

Petmidget

You may well fall foul of the profit motive but ignoring any challenge that HMRC might make...

When you move into the property it will qualify as PPR. For the period it is 1 property it will remain as your PPR.

Once you split the property, I could not say at which point it become legaly split from HMRC point of view, physical splitting or registered as 2 seperate properties with land registry, that you should check on.

Once split, the unlived part now no longer qualifies as PPR and will be treated as an investment.

When selling lived in half you will have full PPR and no problems.

If you move into renovated half once complete you regain PPR and will have lost PPR relief on the peroid on refurbishment. If this is sufficiently short then you should have no problems on a onward sale.

To cover it more completely I would recommend looking at whether once the split has taken place that you elect to move your PPR to the half being renovated and forgo the PPR on the lived in half. As you will still get PPR in the final 3 years of ownership by default when selling the lived in half, this will probably cover any gain that could arise in that time.

So in summary, you dont/shouldnt really have a problem.

But it is possible that HMRC may challenge the bought for profit element, I have seen it happen.