Do I need to pay CTG if I own 2 houses and sell 1?

MonstersMum

Hi - this is not quite as straight forward as the question implies. My partner and I currently own a house which we are intending to sell but we have the opportunity of buying our next house (a renovation project) whilst we still own our current house. We intend to 'do up' the 2nd house prior to moving into it and then selling our current one. Will we have to pay capital gains tax on our current home just because we own another property?

Thanks in advance of any replies

Richie(UK)

Hi and welcome.

As you may be ware, gains realised in respect of a main residence are exempt from Capital Gains Tax (CGT). Therefore, if what you call your 'current house' is the house that you and your partner use as your main residence then there will be no CGT to pay.

However, you can only have one main residence at any point in time. Provided that the delay in occupying the new house is no more than 12 months then you could elect for this property to be your main residence. Any gain on it's subsequent disposal would thus be CGT free. This would obviously leave a gap in qualifying ownership for the first house but the legislation here states that the final 36 months of ownership always qualify for relief.

Therefore, there should be no CGT cost associated with what you propose. (This assumes a 'genuine' house purchase rather than a purchase specifically aimed at making a profit - the latter would not qualify for relief and may even by subject to Income Tax as a trading venture)

jimmo

Actually it’s more straightforward than you seem to fear. Just look at each house separately.

The house you currently live in is, and will continue to be, your main residence for as long as you live there. You will be exempt from Capital Gains Tax provided you sell it within 3 years of moving out.

The new house will become your main residence when you move in and will be exempt from Capital Gains Tax from that date but, provided you move in within 12 months of purchase, Extra Statutory Concession D49 will mean that your relief (not your period of residence) will be extended back to the date of purchase.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65003.htm

There will be no need for any election because there will be no period where you will have 2 residences. The overlap period will be a period where you qualify for relief on 2 properties.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65013.htm