changing main residence for tax

lookingforthelight

Hello,

My parents in law have a buy to let property, with a mortgage, which they are looking sell or transfer to me.

I have a deposit and can get a mortgage for the rest.

I know there are lots of different aspects to this BUT the bit I want to focus on now is any tax exposure. CGT for my in laws being the obvious one.

However, as demonstrated by several Members of Parliament, could my in laws change their declaration of main residence to the tax man a year before they sell. No CGT would be liable on the sale of a main residence.

A year after the sale they could then declare their main residence back to what it was.

Thanks for all constructive help.

anselld

They can only declare reality, ie they would (both) need to actually live their as their main residence and everything which goes with that, ie change all their correspondence addresses, register to vote, register their cars, pay full council tax, etc, etc.
They cannot just "declare" it and stay where they are currently living.

00ec25

They cannot nominate this property if they purchased it more than 2 years ago as the are outside the timelimit for making an "election"- end of discussion.

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

a nomination must be made within 2 years of first having a combination of two properties. Miss the deadline and that's it unless the combination of proeprties chnages ,ie they sell one off and buy another or they buy a third and so have 3 to choose from

note anselld's point- the nominated proeprty must be capable of being lived in at the time of nomination, you cannot nominate a property that is let out

you have also completely misunderstood the effect of nomination, example:
house A lived in as only home - exempt entire time its been lived in
buy house B as second home , not let out
nominate house B as main home, house A now liable for CGT
see house A within 3 years of nominating B and House a is exempt from CGT
sell house A more than 3 years after nominating B and CGT becomes payable on house A

if you want to remain CGT free you must sell a house within 3 years of buying it. If you make a regualr pattern of this HMRC can (although unlikely) say you are now trading in proeprty rather than buying a place to live and so remove assess you under income tax rather than CGT

selling / transfer to you
for parents CGT calculation when they sell / transfer it to you then the value used in their CGT calculaiton must eb the full open market value of the property, this may or may not be the actual proce you pay them

this is called the "connected person rule" and prevnst related people transferring items down the generations to avoid CGT

tim123456789

00ec25 wrote: »

They cannot nominate this property if they purchased it more than 2 years ago as the are outside the timelimit for making an "election"- end of discussion.

They might not be able to nominate it retrospectively

But there's nothing at all stopping them nominating it going forward from now (as long as it otherwise qualifies as a PPR - see next post))

tim

tim123456789

lookingforthelight wrote: »

Hello,

My parents in law have a buy to let property, with a mortgage, which they are looking sell or transfer to me.

I have a deposit and can get a mortgage for the rest.

I know there are lots of different aspects to this BUT the bit I want to focus on now is any tax exposure. CGT for my in laws being the obvious one.

However, as demonstrated by several Members of Parliament, could my in laws change their declaration of main residence to the tax man a year before they sell.

Only if it isn't rented out during that year.

lookingforthelight wrote: »

No CGT would be liable on the sale of a main residence.

No that's not a correct statement of the law. It only happens if other conditions are met.

And don't forget that if they nominated this rental as their PPR for a year they would have one year's CGT to pay when they sold the other houes (if done so more than 3 years later)

tim

00ec25

tim123456789 wrote: »

They might not be able to nominate it retrospectively

But there's nothing at all stopping them nominating it going forward from now (as long as it otherwise qualifies as a PPR - see next post))

tim

saying that you can nominate it going forward is misleading until we have confirmation of the date of purchase as it is obvious that the OP's parents have not yet made a first time nomination

you cannot now make a FIRST TIME nomination on a property that you acquired more than 2 years previously

however, once you have made that first nomination within the time limit you can then "flip" each time it becomes available for occupation in the future. Iie you flip back to the main hiome when the other it let , then when the other is no longer let you flip over to that one if you want.

I reiterate - if you miss the 2 year deadline you cannot make a nomination ever again until you buy a third property and therefore you have a new combination of residences for the first time so the clock starts again
so you are wrong to say they can make one going forward IF it was bought more than 2 years ago

occupation is a requirement: http://www.hmrc.gov.uk/manuals/cgmanual/CG64427.htm
time limit for nomination: http://www.hmrc.gov.uk/manuals/cgmanual/CG64495.htm
the right to make a nomination: http://www.hmrc.gov.uk/manuals/cgmanual/CG64485.htm
start date for a nomination: http://www.hmrc.gov.uk/manuals/cgmanual/CG64497.htm

tim123456789

00ec25 wrote: »

saying that you can nominate it going forward is misleading until we have confirmation of the date of purchase as it is obvious that the OP's parents have not yet made a first time nomination

you cannot now make a FIRST TIME nomination on a property that you acquired more than 2 years previously

however, once you have made that first nomination within the time limit you can then "flip" each time it becomes available for occupation in the future. Iie you flip back to the main hiome when the other it let , then when the other is no longer let you flip over to that one if you want.

I reiterate - if you miss the 2 year deadline you cannot make a nomination ever again until you buy a third property and the clock starts again
so you are wrong to say they can make one going forward IF it was bought more than 2 years ago

No can't agree with this, it's silly.

What if you sell house 1 and house 2 is now your only house?You're saying that it can't (now) be your PPR.

What if you move full time into house 2 and rent out house 1. House 1 can't be your PPR as it doesn't qualify as "available", and you're saying that house 2 can't be either

what a nonsense

You're misunderstanding the rules on retrospective nomination and (somehow) using it to corrupt what you are allowed to do staring from today.

tim

theartfullodger

lookingforthelight wrote: »

Hello,

My parents in law have a buy to let property, with a mortgage, which they are looking sell or transfer to me.

I have a deposit and can get a mortgage for the rest.

I know there are lots of different aspects to this BUT the bit I want to focus on now is any tax exposure. CGT for my in laws being the obvious one.

However, as demonstrated by several Members of Parliament, could my in laws change their declaration of main residence to the tax man a year before they sell. No CGT would be liable on the sale of a main residence.

A year after the sale they could then declare their main residence back to what it was.

Thanks for all constructive help.

Hardly a patriotic act: Why would we want to allow tax cheats to stay in our country, be they relos of yours or MPs, pray??

Would you expect the decent, honest little-old-ladies who pay what is fairly due to make up the shortfall of tax income?? If not what would be done about it, please??

Cheers!

00ec25

tim123456789 wrote: »

No can't agree with this, it's silly.

please do not post on CGT quesitons when you don't know the basics, this is not the first time I have had to correct your attempts at answering tax questions, tax is about rules, not logic

tim123456789 wrote: »

What if you sell house 1 and house 2 is now your only house?You're saying that it can't (now) be your PPR.

I am saying nothing of the sort - the issue in that case is when was house 2 bought? If it was more than 2 years previously then there is no possibility of making a nomination retrospectively or going forward - see my links in #6. if you miss the deadline you can NEVER make a nomination and in that case the question is was house 1 the main residence in reality for the whole time - the answer is based on the test of matter of fact assessment - read this: http://www.hmrc.gov.uk/manuals/cgmanual/CG64545.htm

when you sell house 1 if it was your main residence by matter of fact then house 2 is liable for CGT for the period it takes between its first acquisiton and the sale of house 1 when you clealry then end up with only 1 residence (house 2) which is then de facto the main residence and so is exempt from the date of actual occupation

If you then sell house 2 within 3 years of its ORIGINAL purchase date it will be exempt from CGT by virtue of the "3 year rule" (or more correctly the "deemed occupancy period") which is retrospective as it covers the final 3 years of ownership , not occupation (that distinction is a subtlety for later)

if you sell house 2 more than 3 years after purchasing it then some of your period of ownership is liable (but may be covered by other relief eg letting relief (if let at any time) and the personal allowance)

tim123456789 wrote: »

What if you move full time into house 2 and rent out house 1. House 1 can't be your PPR as it doesn't qualify as "available", and you're saying that house 2 can't be either

what a nonsense.

please read this carefully as you are clearly struggling to understand the technicalities

i) House 1 was the PPR agreed?
ii) House 1 is now let out , it cannot therefore be a residence , agreed
iii) House 2 is now the de facto main residence on the basis it is the only one in occupation, agreed?
iv) a nomination is now too late as it is outside the 2 year rule for the first nomination so the whole assessment stands or falls on the matter of fact test as to which was the de facto PPR and when was that

we return to the issue you fail to understand:

at the time they owned 2 houses , one has to be liable becuase they both cannot be simultaneously exempt .

Unless an initial nomination is made within 2 years, then house 2 is liable until they move into it because house 1 is the de facto residence and the stauts of house 2 is predicated by that of house 1, ie house 2 is liable.

having moved into house 2:

- house 1, which is now let out, retains the status of the previous de facto PPR, so house 1 is exempt for the period they lived in it, liable for the period it is let, but also now eligible for lettings relief because it was once the PPR. House 1 is also eligible for the final 3 years relief because it was once the PPR, even if it continues to be let for the final 3 years.

- house 2 is now the de facto residence and is exempt from the date they occuped it but liable between date of purchase and occupation

tim123456789 wrote: »

You're misunderstanding the rules on retrospective nomination and (somehow) using it to corrupt what you are allowed to do staring from today. tim

utter balderdash - you cannot "do" anything (forwards or backwards) if you did not make the initial nomination with 2 years of first having a combination of 2 properties - if you bother to read the rules you will understand why you are posting rubbish that is nonsense out of context , i suggest you read this, I have since it was part of the exams ! http://www.hmrc.gov.uk/manuals/cgmanual/cg64420+.htm

tim123456789

00ec25 wrote: »

please do not post on CGT quesitons when you don't know the basics, this is not the first time I have had to correct your attempts at answering tax questions, tax is about rules, not logic

With respect, I do know the basics, but I agree now that I have gone to the HMRC website there was one small misunderstanding in my knowledge.

However what you posted was wrong as well: you said:

"if you miss the 2 year deadline you cannot make a nomination ever again until you buy a third property".

But the actual rule is "Your nomination must be made within two years of the date you first have a particular combination of residences", which means that in both my examples you could nominate the second home as you PPR.

If you're going to post long diatribes being rude to the PP then I suggest that you get your facts right first

Goodbye

tim123456789

00ec25 wrote: »

we return to the issue you fail to understand:

at the time they owned 2 houses , one has to be liable becuase they both cannot be simultaneously exempt .

Of course I understand this

Your suggestion that I don't is totally ridiculous

00ec25 wrote: »

Unless an initial nomination is made within 2 years, then house 2 is liable until they move into it because house 1 is the de facto residence and the stauts of house 2 is predicated by that of house 1, ie house 2 is liable.

OK I accept that Ii didn't fully understand the 2 years rule, but you didn't explain it properly either

00ec25 wrote: »

having moved into house 2:

- house 1, which is now let out, retains the status of the previous de facto PPR, so house 1 is exempt for the period they lived in it, liable for the period it is let, but also now eligible for lettings relief because it was once the PPR. House 1 is also eligible for the final 3 years relief because it was once the PPR, even if it continues to be let for the final 3 years.

- house 2 is now the de facto residence and is exempt from the date they occuped it but liable between date of purchase and occupation

Yes, Yes I know this perfectly well - stop telling granny how to suck eggs.

00ec25 wrote: »

utter balderdash - you cannot "do" anything (forwards or backwards) if you did not make the initial nomination with 2 years of fist having a combination of 2 properties - if you bother to read the rules you will understand why you are posting rubbish that is nonsense out of context , i suggest you read this, I have since it was part of the exams ! http://www.hmrc.gov.uk/manuals/cgmanual/cg64420+.htm

I made one small mistake and you go off into some insulting rant

I suggest that you calm down a bit