If I buy before I sell am I liable for Capital Gains tax?

James121

I'm currently selling a property and buying another. My buyer is being very slow and I think there's a chance he might pull out. We still want to go ahead with our purchase on the new place and I am considering using an informal loan from a family member to bridge me for a short period.

I would be looking to use this loan to pay off the mortgage on my existing property so that I own it outright, and then just take out a new mortgage on the new place.

I would then continue to market my current property, and when it sells, repay my family member. I wouldn't expect this overlap to last any longer than about 6 months (providing I find another buyer of course).

Given that during this overlap I would own two properties, would I be liable to pay Capital Gains Tax when the first place is finally sold? Is anyone aware of any allowances for this sort of overlap? Is there a time limit?

And just to add another complication, I would consider getting renters in while it's on the market so that I can give the profits to my family member to compensate them for the lack of interest they would have otherwise got on their money being in the bank.

Would appreciate any advice or hearing from someone who's done this before.

Gwhiz

You'll be fine on the CGT side but...your biggest headache will be can you sell with a tenant in place and will they move out when you try to exchange?

I would say stay clear of this.

scottishblondie

The short term bridging is fine, but I wouldn't even consider putting tenants in there. You have to comply with all the laws that go along with being a landlord, you have to pay tax on the rent, and selling with a tenant in place is nigh on impossible. Tenants aren't generally happy to be disturbed by viewers, and potential buyers aren't going to proceed on a property with tenants in it. AFAIK you'd have to give the tenants a minimum AST of 6 months, and even if you serve them notice to leave after the 6 months, if they refuse it can take months of court proceedings to get them out!

00ec25

In simplified terms: provided the house you are selling has been your main residence at at least sometime during your owenership of it then you are allowed to have a 36 month overlap period between physically moving out and completing the sale. This is known as the 36 month rule or 3 year rule - what you do with the property during that time is irrelevant, leave it empty , visit is occasionally, or let it out makes no difference, it will remain exempt from CGT for those 36 months as this is technically speaking "deemed occupancy" and theffore extends the period of your private residence relief or PRR (used to be called principal private residence relief). PRR is what makes you exempt from CGT for the entire time it is your main residence

all explained on HMRC website here

if you let it out then as you realise this will have Income Tax implications for you and they would of course have to pay income tax on the "profit" you give them.

be aware that you will be liable for council tax on both properties. If you empty it of all furniture you could apply to the counil for a Class C exemption - this lasts 6 months and gives 100% exemptioon. If you leave it furnished then you should apply for the holiday homes or second homes rate - this gioves a discount of between 10% - 50% depening on your own council. Alternatively if you let it out then the tennats would be liabvle for the dates shown in the written tenancy agreement which you will of course puit in place as you learn the many 100's of things it takes to be a legal landlord

BTW, if after 36 motnhs it is still let out, you can then claim lettings relief - this gives an allowance of up to £40,000 off the gain - I suspect you won't need this so won't explain the details - I have an earlier post if you want to search for it

emmaGDB

thanks 00ec25, and to the origional poster. i am i a very similar situation. i too was fretting about coucil tax and CGT. between you both, you've put my mind at ease. BIG THANKS TO YOU BOTH.