Capital gains: what happens if you move out and then relocate for work?

suziebeanie

Hi all

I have a flat which I am considering renting out from Sep 2011 - Sep 2013 as I have quit my job and gone back to university. If I do that I'll save about £2k a year in living costs. But I am concerned about the impact of capital gains tax.

I would like to move back into my flat in Sep 2013 but I may not get a job in London and may be forced to move away for work. If this happens I would have to continue to rent out the property from Sep 2013. I understand that you can avoid capital gains if you sell within 3 years of moving out but as I have a fixed mortgage with a £7k penalty for a sale before July 2014 I would be relying on selling in the two months after then to avoid CGT and I would really like to have the option to keep the flat. I am wondering if it is possible to claim any CGT exemptions so that I could rent the property for longer and avoid both my mortgage penalty and CGT?

1. If I do not move back into the flat before moving away for work, do the two years away from the property count as Private Residence Relief (as less than 4 years)?
2. Assuming the answer to q1 is yes, how long could I rent it for whilst living away because of my job and still claim this relief? Could I rent it for a further 4 years (ie 6 yrs total) and still qualify for relief or are you only allowed one block of 4 years?!
3. Finally if you can get the last 3 years discounted can you use that even after claiming 1 and/or 2 above ie. rent it without paying CGT for 9 years?

Further info:
I bought for £195k, and I anticipate my flat would sell for about £250k. This leaves a £50k gain, offsetting the current £10,100 allowance leaves 39,900k profit. At Sep 2011 I will have lived in the property for almost 6 years. I assume 18% CGT will apply which = £7182. I assume that I might be able to opt to claim the working away time so I'd get relief on 10/12 years or maybe even 13/15 years so meaning I'd pay c.£1220 in tax. Is this on the right lines are am I going mad?

Comments greatly appreciated! Thanks

jimmo

On all your scenarios, apart from letting for an indefinite period, you are very unlikely to face any Capital Gains Tax liability.
As your plans are really open it might be better for you to study this.
http://www.hmrc.gov.uk/helpsheets/hs283.pdf

CLAPTON

it works like this

the period you actually lived there plus the last three years are exempt (called PPR)

you can claim letting relief which is the lesser of
PPR
the period of the let
40,000


after that you get the cgt allowance of 10,400

so it most unlikely that we would have anything to pay on such a small gain

So in your circumstances

if you sold before september 2014 there would be no cgt as you are covered by the last 3 year rule

if you sold say before september 2015
you would have owned for 6+4 years i.e. 10

you would have 6 + 3 years PPR exemption i.e 9/10 of the gain is exempt
plus letting relief exemption of 4 years

so no cgt

indeed you could probably let for more than 6 years before any liability for cgt and thats without even using your 10,600 cgt allowance