Capital Gains Tax on BTL property

Halle71

We've just bought a BTL property so jumping the gun a bit but we are trying to work out a five year plan.

We are not married but have two children and, as of Friday, two houses in London. Basically the area we live in has been undiscovered until now but in the last six months prices have gone ballistic as they were undervalued compared to neighbouring postcodes. So capital gains tax could have a massive impact and I am trying to work out the implications and the best way to minimise it.


With a bit of work our BTL could be stunning so this is my plan A:

In 3 years we rent out our main residence and move into BTL
Live in BTL for a year while renovating it.
After this year we sell both and buy our dream home.
Do we pay any capital gains? From what I understand we may not but it's very confusing so I expect to be corrected

Main residence - have 3 years exemption of which we will have used one.
BTL - lived in the house for a year so the previous 3 years are exempt. Or do we have to live in the house before we are entitled to the three year exemption?

Thanks!!

Laurajo_2

Potentially.

For PPR relief, it's the last three years of habitation that are deemed to be occupied.

All other periods of deemed occupation (apart from being away on employment) rely on your moving back into the property after being away.

So it depends on how long the property takes to sell. And how much the values increase.

Are both properties jointly owned?

Halle71

Thanks.
Yes, both properties are jointly owned.

g3no70

Had my house 15 years, the value is poor in the last ten years it hasn't budged then again it's not in London! There are winners and losers in property.

redfox

I've changed the title for you to reflect what you wanted it to be.

Halle71

g3no70 wrote: »

Had my house 15 years, the value is poor in the last ten years it hasn't budged then again it's not in London! There are winners and losers in property.

But you get more for your money out of London and potentially live in a better/prettier area - although it's 'up and coming', our area has a long way to go before it's desirable......
The reason we are doing this is because we are in a position to upgrade our home but, because of school ad nursery, we are limited to a very small area and cannot find anything suitable and affordable. Instead of having money earning !!!!!! all in the bank, with help from our parents, we have bought a BTL.

CLAPTON

Halle71 wrote: »

We've just bought a BTL property so jumping the gun a bit but we are trying to work out a five year plan.

We are not married but have two children and, as of Friday, two houses in London. Basically the area we live in has been undiscovered until now but in the last six months prices have gone ballistic as they were undervalued compared to neighbouring postcodes. So capital gains tax could have a massive impact and I am trying to work out the implications and the best way to minimise it.


With a bit of work our BTL could be stunning so this is my plan A:

In 3 years we rent out our main residence and move into BTL
Live in BTL for a year while renovating it.
After this year we sell both and buy our dream home.
Do we pay any capital gains? From what I understand we may not but it's very confusing so I expect to be corrected

Main residence - have 3 years exemption of which we will have used one.
BTL - lived in the house for a year so the previous 3 years are exempt. Or do we have to live in the house before we are entitled to the three year exemption?

Thanks!!

depends upon the detail (like the price of the property)



however if you sell your current home within 3 years of moving out then no cgt


for the rented property a bit more complicated

if you live there as your PPR then you get
-the last 3 years tax free
-letting relief (max 40k)
-cgt allowance of 10,900 each


that may or may not be zero tax

holly_hobby

Figs aren't completely accurate.

You need to nominate to HMRC within 2 yrs which is your primary residence.

Current property which is your primary residence if sold within 36 mths of vacation there is no CGT computation at all (even if it isn't your primary residence during this period), as the entire residency will fall under PRR exemptions.

2nd property - period when it is your PRR is exempt, as is the last 36 mths of ownership due to it acting as your primary residence during your ownership.

Anything that falls outside of PRR exemptions on either property (and if let at any point during ownership), the following futher exemptions are available against EACH beneficial owners liability ... .

Lettings relief - which means 2 x max 40k (ie a total of 80k against the total gain)
PLUS
Unused CGT personal exemption - ie 2 x £10900 which is at 2013/14 rates (which would give £21,800 against the entire gain at present exemptions , and of course may well have increased/changed under HMRC during the tax yr you actually sell)
PLUS
Any associated acquisition, improvement, disposal, and professional fees/costs (supported by receipts)
PLUS
Any prev reported CGT losses for either individual

So in each case (os of PRR exemptions) you'll be looking at really hefty gains before you are exposed to any tax liability.

Of course the above is all based on current HMRC regs, which may have been amended or changed at the actual point of disposal (unlikely apart from annual CGT personal exemptions), but worth mentioning for thoroughness.

Of course you may want to engage a tax practioner to assist when the time comes.

With regards to letting income, as you are not married, you can split the rental income in whatever proportions you want under your individual annual self assessment returns (eg weight the heaviest net rental receipt under the individual with the lowest tax code).

If you do marry, and the property being rented out is held under joint tenancy, HMRC assume rental income is automatically split 50/50. So if one of you is a lower tax payer than the other, you may want to consider amending this to tenants in common (TIC), where you can split ownership on an unequal basis ie 99/1 or whatever, to which you then complete and submit form 17 to HMRC declaring the unequal rental income split for Inc Tax purposes (which must mirror the nominated TIC shares ie 99/1 or whatever).

Hope this helps get the ball rolling ....

Holly

CLAPTON

holly_hobby wrote: »

You need to nominate to HMRC within 2 yrs which is your primary residence.



Holly

properties rented out can't be 'nominated' as PPRs

holly_hobby

CLAPTON wrote: »

properties rented out can't be 'nominated' as PPRs

Where you have 2 units both unlet, then nomination is in respect of delcaring which unit is the individuals primary residence (PRR, or primary residence relief, is the actual CGT exemption which may be applied, not the term in respect of nominating a particular unit ), and is reqd unless you want HMRC to do the choosing (although for unmarried individuals,as we have here, both units may act and be nominated as individual primary residence's, if thats the case, with supporting evidence as reqd.

Obviously only an unlet dwelling also acting as primary residence, may be nominated as a primary residence of the individual, and qualify for relevant PRR exemptions ... thought that would be pretty obvious TBH.

But then again perhaps not to all .... so wise to clear that up for those struggling to understand what, where and when PRR is relevant.

Hope this helps

Holly x

Halle71

Thanks everyone.
Holly, that's a brilliant and clear breakdown - thanks for your time.
Maybe HMRC could employ you to rewrite their website as it is impossible to find definitive info on this topic.

It looks like that may be a good plan to maximise profit from both properties.