Capital gains - sellimg main home

wit2001large

Hi. My inlaws have recently sold their main home and moved into a second home they purchased 11 years ago. During those 11 years, they have lived between both on an even basis. Are they liable to pay CGT? I don't think they are as it is their main home they have sold and the house they have moved into was an investment but purely for living in purposes. It has never been rented or used as a 'holiday' home as they have both been retired during the 11 years. Please help. Thanks.

sirmosh

According to this page - http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4016337 they do have to pay CGT as it wasn't their only home (it appears you can only own a second home in the last three years before you sold the property).

It's possible my interpretation is way off, I'm sure someone knows a lot more than me about it.

wit2001large

Thanks sirmosh. I have looked into that a bit further and ahve found the following statement:

When you no longer live in the property

Even if you no longer live in your property, you can still qualify for the full amount of Private Residence Relief, provided that:

• the property has been your main home from the time that you bought it
• it has otherwise fully qualified for Private Residence Relief (for example, you have not used part of the property exclusively for business purposes)
• you sell it within three years of moving out or it no longer being your main home

as far as I am aware, the home they have sold has been their main home for 40 years and has never been used for business purposes, etc. They only technically moved out full time 3 month ago and have just finalised the sales this week. Based on the above, I would interpret this as qualifying for the full relief???

Kynthia

I think they have to decide which property was their main home was they owned two properties as only one can be exempt. They should document that as it will be relevant should they ever sell the other property.

CLAPTON

from what you say they have sold their principal private residence and so no cgt will apply.

although there is an option to nominate the PPR if you have two 'homes' they would have needed to do that with 2 years of buying the second home.

so no cgt but they may well have cgt to pay when they sell their 'second' home

00ec25

One or the other of the properties is (was) inescapably liable for CGT, the question therefore is which…

Because they did not do the nomination within 2 years of buying the 2nd property it is now too late to voluntarily allocate which one will be classed as the main home. In these circumstances HMRC decide on which is the main residence based on the “facts” – this is a judgement made on the quality of the occupation – ie was it actually their main home in reality rather than just a paper exercise

If we take the easy path and set out to establish that the house they have now sold was their main residence and therefore CGT exempt, the sort of issues they will need to demonstrate to HMRC (if they are challenged by them over the sale, remember HMRC are notified of all property sales in the UK) are:
- Was the commute to work more realistic from one house or the other (it is assumed the main residence is the more realistic proposition)
- As a married couple they are only allowed, in tax law, to have the same main residence and are assumed to live together
- Where did their children go to school
- which address did they use for car insurance
- where is their doctor , dentist
- which do they claim second home council tax discount on
- where is their electoral roll registration
- where is their post delivered to (which address do they give out to everyone to use)

http://www.hmrc.gov.uk/manuals/cgmanual/CG64545.htm

As they were retired then obviously some of the above wil not be relevant and given you say they used both "equally" it may not be as clear cut as you think , but those are the issues they will be judged on.
Indeed HMRC if they get nasty may also raise the issue of "intention to return" - if they bought the 2nd home from the outset with the intention to live in it when retired then HMRC could argue there was a clear intention to occupy it as the main residence from the outset, particulalry as, by your own admission, they have already lived there "equally" - so it is by no means clear cut that the place they have sold is the "main" residence

If they succeed then the 2nd home will have 11 years of CGT liability built up on it before they move in. The position therefore, for example, if they sell it 20 years after they bought it is:

Total period of ownership 20 years
Exempt period (period lived in 9 years)
CGT liable period 11 years (period not qualifying as main residence)
Total gain made during ownership period, say £50,000
So CGT liability in this example: £50,000 x 11/20 less the CGT personal allowance (currently 10,600 per owner)