Principal Private Residence

indie80

Hi,

I've seen various examples of how this works when letting a property but none seem to relate to my situation.

I own a flat that I bought back in May 2005 and lived there up until the beginning of 2012.

In December 2011 my Father passed away and I inherited his house.

At the beginning of March 2012 I moved into my late Fathers house, however it wasn't until around August that I legally owned the property as the building society kept on loosing the paperwork! So in terms of my residence at that property, would it be from when I moved in or from when the house was put in my name? I was the sole executor and beneficiary of his estate.

Ever since I moved out of my flat it has been unoccupied and it is currently on the market to be sold. Presumably that would currently be my Principal Private Residence? The flat is on the market for £9k more than I paid for it and I doubt it will barely scratch my Capital Gains Tax allowance.

When the estate agent valued my late Fathers property for probate, it brought his Estate in well below the Inheritance Tax threshold. The house needs freshening up and some modernising/repair.

From what I understand, as it stands at the minute, as I've lived in my flat for over 3 years there wouldn't be Capital Gains Tax due. Though it seems a bit of a waste of the CGT relief given that the 'profit' from the sale of my flat would be next to nothing due to inflation.

If I nominate my late Fathers property as my Principal Private residence, which it has been for almost a year, does it mean my full exemption status for my flat would be transferred to that property? And so when I come to sell it I wouldn't have ANY CGT to pay on it?

That's the part I'm unsure of along with when my residence would have began.

Thanks.

martinsurrey

1) You can’t transfer Principal Private Residence (PPR) relief so the relief relating to you old flat is ‘stuck’ there (but thats not a bad thing).

2) the last 3 years of ownership of any property that has ever been your principle private residence is included in the calculation of CGT relief so if you sell your flat before the start of 2015 you will not pay and CGT on it.

3) In order to get PPR you need to have a legal interest in the property (so own it)

http://www.hmrc.gov.uk/manuals/cgmanual/CG64470.htm

4) when you acquire your second property you have 2 years to elect with HMRC which one will be your principle private residence and that election will apply retrospectively from the date the combination of properties existed

So in your case you can elect for your PPR to change from your flat to your inherited house up to August 2014 and it will apply from August 2012.

http://www.hmrc.gov.uk/manuals/cgmanual/CG64495.htm

http://www.hmrc.gov.uk/manuals/cgmanual/CG64497.htm

when you come to sell HMRC should be okay with you using the probate value as the value you started occupying the house, as prices are static and no work was done.

As such you should get 100% PPR relief on the inherited house IF you live there until before you sell it.

You need to make a TCGA92/S222 (5) election to HMRC before AUGUST 2014, but i recommend you do it ASAP.

martinsurrey

00ec25 wrote: »

for the benefit of future readers one small clarification in Martins' otherwise excellent post

PPR is available to people who own one property but rent elsewhere as they have a legal intrerest in 2 properties either of which can be classed as main homes hence the need to specify which one actually is the main home

good point, however to get PPR you must 'live' in the house you nominate, not just own an interest in it (I put ‘live’ as this is not defined, but having the ability to access is a must).

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#5


as such if you move out of your owned home into a rented house and then rent out your owned home, you no longer 'live' there and in fact have no right to access so cannot claim PPR for this period ( unless you meet some special criteria http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#2 ).

This is typical for an accidental landlord and is an area that needs to be considered on disposal of any home which has been rented out.

but if you rent a house and leave your owned home empty you can claim PPR on it IF you make the election with HMRC.

You MUST make this election as if you dont HMRC will use the facts to decide which was your main home, and you rent a house to live in it, so will be hard to refute.