Buying two houses

maisie1234

Hello,

Could do with some advice. We have a house in the SE worth just over £1 million. When we retire (in about 8-10 years!) we would like to buy two properties. One in the country and a small flat in say Kew or Richmond. They will need to be no more than 90 mins away from each other, we would use the flat in Richmond at least once a week. I love London and my husband loves the country hence the query!

We will both have good pensions (I will have 35 years plus continuous working and a final salary pension) and my husband will be the same (without the final salary scheme!). At present my own pension will be paying out just over £30k per year.

We have two sons but they will be grown up by the time all of this happens. We will have no school fees and mortgage by the time we consider moving.

What is the best way to do this?

1. One property in each of our names?
2. We are likely to spend say 30% of our time in the London place and the rest in the country.
3. We both have wills and guardians appointed although we are looking to revist our wills over the next few weeks. Our estates are left to each other and then our sons

I understand that we need to nominate one house as a main residence. They are likely to both be worth the same sort of amount. CGT is only payable on the 2nd house gain in the years we keep it I believe.

Is there anything else we need to be aware of. I know we are likely to need two of everything but we have plenty of furniture and buying another dishwasher or washing machine will be no bother.






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00ec25

you have correctly understood the CGT exposure. Note that because you are married the house you nominate as the main residence must be the same for both you, married couples live together as far as the taxman is concerned!

for the benefit of other readers the OP has already had 3 pages of answers on their duplicate post here
https://forums.moneysavingexpert.com/discussion/4773568

nomunnofun

Nothing further to add to 00ec25 other than the fact that the suggestion to put one property in each name would not be good idea. When you decide which one to sell, only one capital gains exemption would be available against the gain on that property and, potentially, more could be paid at the higher rate of Capital Gains given your income.

Keep them both in joint names.

CLAPTON

just to clarify


1. have joint ownership of both properties as nomumnofun says as you each have a cgt allowance (currently 10,900)

2. you don't have to nominate which property is your PPR but it gives you opportunity to 'switch' PPR (just like MPs) and take advantage of the 'last 36 month rule)


so if you nominated your country pile as PPR but then wanted to sell your town flat.

switch nomination from country pile to london flat
sell flat with the benefit of 36 months exemption and of course two lots of cgt allowance (10,900 each) thus reducing cgt ... details depend upon the numbers
then renominate country pile... you will have lost a couple of months of PPR on it but if you then sell that later, you get you two lots of 10,900 allowance

you really need to model your circumstances and play some 'what ifs' but hopefully you get the idea.

of course the rules might change in the future

maisie1234

Thank you for all your responses. TBH both properties are likely to be the same cost circa £500k each. We just want to enjoy both and if CGT is payable when we both die then that's fine. We wont be worrying about it! The boys will have enough money and I really dont like the idea of gifting them one of the places and due to high divorce rates the value and profit ends up in the bank account of some ex DIL.

CLAPTON

maisie1234 wrote: »

Thank you for all your responses. TBH both properties are likely to be the same cost circa £500k each. We just want to enjoy both and if CGT is payable when we both die then that's fine. We wont be worrying about it! The boys will have enough money and I really dont like the idea of gifting them one of the places and due to high divorce rates the value and profit ends up in the bank account of some ex DIL.

there is no cgt on death; only on 'disposal' during your life time.

there will be IHT

if you 'give ' the properties to your children and continue to live in them rent free then the situation might be different.. your kids may then end up paying cgt and IHT on the properties but that is another story.

maisie1234

Thank you for the clarification. Really backing away from gifting to the children tbh. They will be our properties for us to live in. When we are gone the estate will be divided up IHT paid and anything left over can go to the boys.

Blimey though. £450k for a 2 bed flat in Kew...... Know London prices and we wouldnt do for investment, just to enjoy.

antrobus

CLAPTON wrote: »

....if you 'give ' the properties to your children and continue to live in them rent free then the situation might be different..

Probably a 'gift with reservation'. One would need to take professional advice before pursuing that option.

https://www.gov.uk/inheritance-tax/inheritance-tax-planning-passing-on-property

maisie1234

This is actually much simplier than I thought. Unless we start gifting properties to the children its straightfoward enough.

John_Pierpoint

As I understand what you have written, your wills are likely to leave the surviving spouse with a life interest in half of each property, in addition to the half already owned absolutely; with the sons being the "remainder men", eventually inhering the half of the first spouse to die ?

That would protect half the "family" inheritance from the survivor re-marrying, leaving everything to charity ("cats home") and/or suffering a debilitating long term illness siphoning off the estate into care fees.

The flat and country pile would need to be owned as "tenants in common" to make the above possible.

Assuming that the present laws remain in place unchanged, the Inheritance Tax (IHT)payable on the second death (instead of CGT) would be zero on the first £650k of wealth, then 40% on the remainder. Trying to dodge IHT on real estate is difficult - time to become a farmer, forester or agricultural land owner?

Pennywise

CLAPTON wrote: »

2. you don't have to nominate which property is your PPR but it gives you opportunity to 'switch' PPR (just like MPs) and take advantage of the 'last 36 month rule)

Just remember that if you're going to "flip" your home for PPR relief, you have to nominate one within two years of buying the second. If you don't nominate within the time limit, then HMRC will decide which home is your PPR on the facts and you'll lose the ability to flip them.

So, when you have two, write to HMRC to tell them that you're nominating one to be your PPR. Once done, you can change your nomination to the other property, and vice versa. If you owned both for several years, you could be completely exempt from both if you nominate A to be PPR for first three years, then B for next three years, then back to A for three years, etc. You get PPR for the years each was your home and you also get the 3 extra years, so get the timings right and you have no CGT to pay at all.

This planning opportunity is completely lost if you don't make that first PPR nomination within 2 years of buying the second home.

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