Just an idea

harvey1964

we own the house we live in , and we have one other house that we rent out ( wife had it before we got married) As you are allowed to sell your home ( that you live in - and tax exempt ) is there anything stopping us selling our main family home and banking the money and moving into the smaller home, and declaring it our new family home. Any ideas ? can we then avoid tax on selling the smaller home at a later date ?

CLAPTON

give the full facts about both properties

ownership
when bought
price
when rented out
price now (approx)

jimmo

To add to CLAPTON's post:
Who lived where and when?
What was the date of marriage?

xylophone

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm
http://www.hmrc.gov.uk/helpsheets/hs283.pdf
would be worth a read.

Cook_County

Flipping properties and making PPR elections is perfectly legal today. It may not be so very soon.

harvey1964

It was bought in 1980 and wife lived in it until 1992. Then rented in 1992 until 2011. We bought our house together we are in now in 1992 and have no mortgage on it now. We want to sell our main home. Help our kids out a bit with money and move in the small one . Is this legal? We have declared the rental one and pay self assessment tax on it !

harvey1964

We married in 1992. The house that was my wife's is worth £80,000 and the home we live in now has been valued at £200,000 approx ( in today's market )

00ec25

Current "home"
For CGT purposes a married couple must have the same main residence and it is the one in which you actually live.

Since you got married in 1992 and appear to have set up the current home from that date, then it has always been your “principal private residence” from the date you (both?) bought it. As such you and she (assumes you own it together) can sell it completely free of CGT as it is 100% exempt from CGT under the private residence relief (PRR)

Thus there is absolutely noting stopping you then downsizing, pocketing 200K and moving into the ex rental property free of tax.

However, be aware that when / if your wife eventually sells that rental property your wife (not you) will be liable to CGT on the sale of that ex rental property.

Ex rental property – CGT when it sells - the original purchase price is actually restricted to the value of the property as at 31 March 1982, the valuation office can help with this figure. So your wife’s original purchase price will be whatever its value is at March 1982, not what she actually paid for it (I won't go into the details of the exception to this rule), lets stick to the basics, it's the 31 march 1982 value that counts!

The gain she has made will therefore be the difference between that and what she sells it for in the future.

This gain will then be reduced by the following:
a) The private residence relief - the gain made during the time she lived in it as her only or main home before she got married. In this case it is 1982 – 1992. Note CGT is calculated in months not years but for the purpose of this example we’ll use years and as you have not provided the 1980 purchase price let’s take an arbitrary guess that its value in 1982 was £15,000 and that you sell it in 2012 for 80,000. The gain is this 65,000. She had lived in it for 10 years (1982 – 1992) but as at 2012 had owned it for 30 years (1982 – 2012). Also because it was once her PPR she gets deemed occupancy ("3 year rule") for the final 3 years of ownership. This means that as she stopped letting it in 2011 but didn't sell it until 2012 then she gets the period from 2010 to 2012 (final 3 years) as an exempt PRR period, so in total she gets 10 + 3 years PRR, the PRR relief is therefore 65,000 x 13/30 = 28,166

b) As wife let the property from 1992 to 2011 she (not you since it is in her name only) is entitled to letting relief. however, as she is already getting deemed occupancy from 2010, the period for letting relief cannot overlap with that. so her let period for the purpose of letting relief is 1992 - 2009 ie 17 years. The relief is the lower of a) the PRR gain or b) the gain during the let period or c) a cap of £40,000. Sticking with the above illustrative values in that case it would be a) 28,166 or b) 65,000 x (17/30) = 36,833 or c) 40,000. So she gets 28,166 letting relief as the lowest figure

c) She, as the single owner, also gets to claim her personal allowance in the eyar of sale. This is 10,600 at current rates

So overall in that example her CGT liability would be gain 65,000 – PRR 28,166 – letting relief 28,1666 – allowance 10,600 = 1,932
(checksum PRR 10+3 + letting 17 = 30 years, but remember the calculation must be in months not years )

Given the above values and 2012 sale date she would end up paying CGT on 1,932 at either 18% and/or 28% depending on her total income plus gains that year

ceeforcat

Pretty comprehensive 00ec25 - did you cut and paste this from your latest tax examination answer paper? Worthy of a sticky in my view!

CLAPTON

1. it would seem to me that the last '3 years' of relief have been ommitted.

so the PPR relief will be 13/30 rather than 10/30

2. I don't see how election of PPR would be relevant for a rental property; it only applies where they are genuinely two residences both used by the ownere for their own useage.

00ec25

ceeforcat wrote: »

Pretty comprehensive 00ec25 - did you cut and paste this from your latest tax examination answer paper? Worthy of a sticky in my view!

exam :eek: last did one of those 26 years ago