CGT: Nominating home as principal private residence

travel_freak

Hi there,

Please does anyone have any info. on how to go about nominating a house as your principal private residence? Is there a form or can you just send a simple letter?

Where do you write to - is it your tax office as per your self assessment details?

Also, any advice/tips as to pros and cons of doing this? My situation is that I stand to make a fairly substantial profit on a recently bought buy to let ppty. Having asked the lender for permission to live there myself this has been granted. I plan to live there for a while and then to sell and hopefully avoid CGT as the place will by my private residence and hopefully fall under that exemption to CGT.

From reading around on the internet I gather that I can live there for a few months and then either sell straight away or alternatively let for a while (taking advantage of lettings relief) and then sell and still come out with a nil or fairly minimal CGT liability.

Thanks in advance for any advice.
Regards,

moonrakerz

From taxationweb.co.uk. with reference to CGT.

"1. the property must not have been purchased for the sole reason of making a profit and

2. that to be exempt the property (dwelling house) must be an individual's only or main residence throughout the period of ownership"


I think both of those might scupper your plans. You don't think Mr Brown would make it that easy ?

travel_freak

Hi Jimmo,

Many thanks for your advice.

I am a bit confused! Basically I don't own the property where I currently live. In October 2006 I bought a buy to let flat. That came with a tenant in place and has been rented out fully since then. I have never lived in that property and intend to keep that one as a long term letting investment over maybe 10 years.

Then in December 2006 I bought a second buy to let flat. Although this needed work, it seemed I was lucky with the purchase price and having recently had it valued it's rocketed in price. This made me think that rather than let it I would like to sell it to realise the gain and put this towards maybe buying something for myself - here or abroad. Either that or reinvesting some of the profit into another buy to let.

I thought because I own the two buy to lets I would have to nominate which of those is my "main" property.

I also thought just from general reading round on the internet that if you move into a property (and yes I would do this fully/properly) that it would then be possible to reduce CGT liability on the basis it is your main home.

I bought it with the intention of letting it out and it is only since having the valuation done that I'm thinking it might be better to sell soon in case the market crashes! So I wrote to my lender and asked for permission to live in the property which they have granted without change to my mortgage terms.

I do do self assessment returns so would have to account for the sale of this property if as and when I sell and am just a bit worried that if the period I occupy the property for is short they may charge me the CGT anyway in which case I may be better off just keeping it as a longer term but to let investment as originally planned.

Confused! Does anyone have any thoughts on the best way forward? It's a great situation to be in I know as I didn't anticipate there would be such a gain in such a short time but I'd just like to try and make the best of the tax situation.

Thanks and regards,

WHA

If the time you live in the property is very short, and the time you owned it is also very short, then not only is there a risk you'll have to pay capital gains tax on the profit (i.e. principal private residence relief not allowed), but worse still, it could be argued that you were "trading" and have to pay income tax and NIC on the profit, without the usual CGT exemptions and reliefs.

You need to "really" live in the property for a decent period of time to get the PPR relief, which means registering to vote at the new address, having all your banks/credit cards accounts addresses changed, etc etc. Probably more importantly to give credibility to your actions, you need to formally end the tenancy of your current rented home and then once the property is sold, move into a different rented home, or another new home to live in. If you just moved out of rented and moved back in again to the same rented house a few months later, HMRC would argue you didn't move at all. But, the actual length of time occupied is not as important as there being a clear intention for the property to be your home. For example, even if you did "move" properly, but either had the property up for sale before you moved in, or shortly after you moved in, there is clearly no "intention" for it to be your long term home, so you should "live" there for a decent time before putting it up for sale.

As already advised, making the "election" in your circumstances is fairly pointless and meaningless. HMRC will work on the "facts" of the matter and will probably want to dig around. Short periods of "occupation" and short periods of ownership carry a far greater risk of being "found out" by the tax man and investigated. HMRC inspectors know all the tricks around PPR and watch for them. After a few years of people making profits, they are finally getting around to realising what is happening and realising the potential loss of tax - it is clear that they are becomming more active in chasing the property-profits.

travel_freak

Thanks everyone for the really helpful replies. It is a confusing area - just having read basically online and a little in a library book on CGT these sources all seem to suggest that it is a common practice for landlords to move into a property so as to be able to take advantage of the CGT reliefs and exemptions. Almost without exception they suggest that this is a practice which is commonly used by landlords with many properties. They are a bit woolly about how long one would have to live there for and admittedly some of the sources do say that rules are/have been tightening up.

I may have to reconsider my options in light of advice given. Certainly if I were to sell soonish I would face a massive redemption penalty on my BTl mortgage which I took out as it was at the time my true intention to keep this property for 10 years.

Anyway, I'm based in Middlesex - please can anyone recommend a suitably qualified accountant who is knowledgeable on CGT? Also any idea what I should expect to pay for advice and how this is charged - i.e. on an hourly basis or by reference to the amount/value of the property/ies you own?

In some ways it seems to me that there might be little advice I could gain from an accountant beyond what has already been said i.e. if I move in I must move in properly, for a reasonable length of time, severing ties, moving account addresses etc., etc., and preferably not be moving back to the place I have come from when I do move on from there? I suppose an accountant doesn't have a crystal ball either to be able to see whether the Revenue will or will not accept the situation.

One option I am thinking of is possibly buying a place abroad to live part of the time there and part here. I am nowhere near ready to take that step now but when I am I wonder whether this might this be accepted by the Revenue as a genuine reason for selling up the BTL property I am now thinking of making my main residence?

Thanks again and regards,