To sell or keep 2nd home

geri33

My wife and I are in the process of selling our home. This has been our principal residence for 8 years since we got married. Once sold we are moving to my wife's other house (just in her name) which has been let out for the past 8 years and is now vacant. She bought the house in 1998 and she lived there up until 2004 when we bought our current home (joint purchase). It has been let out since and we are in the process of completing tax returns for those years.

We are now at the point do we either sell her house or keep it let out, trying to weigh up pros and cons.

If we sell her house to buy a house in a better location near our jobs. Please can you tell me what is the most tax efficient way to do this given I am a company director and she is 50% shareholder both pushing us into the higher bracket. Would changing the split of the company help? Are there time limits for doing this?

If we decided to keep her property let out, incidentally,we don't seem to be making much profit after tax, bills, periods it's not let, problem tenants etc with the change to CGT 36 months reduced to 18 months would we be likely to lose out quite a bit financially when we do eventually sell say in 5 years as opposed to selling now.

Any thoughts would be appreciated.

Thank you.

CLAPTON

geri33 wrote: »

My wife and I are in the process of selling our home. This has been our principal residence for 8 years since we got married. Once sold we are moving to my wife's other house (just in her name) which has been let out for the past 8 years and is now vacant. She bought the house in 1998 and she lived there up until 2004 when we bought our current home (joint purchase). It has been let out since and we are in the process of completing tax returns for those years.

We are now at the point do we either sell her house or keep it let out, trying to weigh up pros and cons.

If we sell her house to buy a house in a better location near our jobs. Please can you tell me what is the most tax efficient way to do this given I am a company director and she is 50% shareholder both pushing us into the higher bracket. Would changing the split of the company help? Are there time limits for doing this?

If we decided to keep her property let out, incidentally,we don't seem to be making much profit after tax, bills, periods it's not let, problem tenants etc with the change to CGT 36 months reduced to 18 months would we be likely to lose out quite a bit financially when we do eventually sell say in 5 years as opposed to selling now.

Any thoughts would be appreciated.

Thank you.

to say anything meaningful about cgt we need some details like

purchase price
likely selling price
period of residence
periods let

agrinnall

CLAPTON wrote: »

to say anything meaningful about cgt we need some details like

purchase price
likely selling price
period of residence
periods let

I think the last two questions are answered in the OP:

Bought in 1998 and lived in (by the wife) until 2004.
Let for 8 years.
Now vacant.

geri33

Hi, my wife's house was purchased for £99,000 in Nov 1998 and we are hopeful of it selling for £400,000. It has been let continuously give or take a few months here or there since September 2004 until this month.

Is there a period we would have to live there before we could sell it for it to be classed as our main residence?

Thank you

holly_hobby

CGT is chargeable and payable by beneficial owners, assuming that you are only citing your wife as beneficial owner the following applies.

If wife sells before 6 April 2014, then she will have the last 36 mths coming under CURRENT PRR exemptions IF she sells after April 2014 its the last 18 mths as you are aware, plus full PRR exemptions for her acutal period of occupation.

That leaves (on a pre 6.4.14 sale) 5 yrs gain exposed to CGT, less documented acquistion/disposal costs, imrovement costs, lettings relief (max 40k ), prev reported CGT losses, annual unused annual CGT personal exemption. (currently £10,900 2013/14).

If you are to be cited as fellow beneficial owner (which would commence from your date of marriage), you would then be able to apply against the gross gain, double lettings relief exemption (ie max of 2 x 40k) and double unused personal CGT allowance ie 2 x £10,900), this would of course have to be substantiated in respect of any HMRC inspection, and may be done so by providing such evidence as..

you both having declared net rental reciepts under your individual annual SA returns from 2004

sharing of associated costs/fees etc

sale proceeds either going into a jnt account, or being divided equally between your separate accounts (if you have keep your finances separate)


The above list is not exhaustive, HMRC may accept or choose not to, and you may want to seek guidance from accountant on whether gong down the beneficial ownership route will be possible..

If you let us have some figs, we can give you an idea on what the acutal cgt liability may be.

Hope this helps

Holly

lincroft1710

geri33 wrote: »

Hi, my wife's house was purchased for £99,000 in Nov 1998 and we are hopeful of it selling for £400,000.

She must have spent a lot of money on it for it to quadruple in value in 15 years, or is it in London?

My house also bought in 1998 and since been extended and improved is only worth three times the 1998 purchase price.

holly_hobby

Rounding up period of ownenship to round yrs for ease, so the following are ballpark.

If sold pre 6 April 2014 - with a total of 15 yrs 5mths ownership ie Nov 1998 - April 2014 or 186 months (as cgt is calculated in whole mths of ownership).

Gross gain = £400,000 (disposal) - £99,000 (acquisition) = £301,000

Less PRR exemptions at current rates up to 6 April 2014 of 102 mths (ie nov 1998 -apr 2004 & last 36 mths) = £165,064.52 of gain exempt under CURRENT PRR exemptions

So of the total 301k gain, £135,935.48 of this does not have PRR protection so is exposed to CGT.

£135.935.48 LESS £40,000 (1 x lettings relief) LESS annual CGT allowance 1 x £10,900 = £85035.48 x 28% tax for higher rate tax payer = £23,809.93 liability for wife (this will be reduced if there are any further adjustments in respect of applying prev reported cgt losses, improvement and, acquisition/disposal/professional costs to the £135,935.48 fig)

If you are however able to claim joint Beneficial Owner status, and still assuming you sell pre 6 April 2014, then the calcs are ....

Gross gain of ... £135.935.48 Less 2 x 40k lettings relief = £55935.48 Less 2 x £10,900 = £34,135.48 x 28%/2 (as you are both Higher rate tax payers) = £4,778.97 tax for each of you to pay under SA (ie joint liability of £9,557.93)

Again, the above may be further adjusted by any improvement, pre reported CGT losses, acquisition/disposal costs.

IF you sell after 6 April 2014 (ie post scheduled reduction of PPR exemption of final ownership period from 36 to 18 mths), but still within 186 whole mths of ownership (just for the example), then the PRR exemption will reduce to 84 mths EQUAL TO £135,935.48 of the £301k gain being exempt.

If only Beneficial Owner is reported as wife, this will equate to revised exposure of -
£165,064.52 -- 1 x 40k lettings relief = £125064.52 - - 1 x £11,000 (annual cgt allowance 2014/15) = £114,064.52 x 28% = £31938.06 wife to pay

If joint Beneficial Ownership declared between you at sale post 6 April 2014
....
£165,064.52 - 2 x 40k lettings relief = £84,064.52- 2 x £11000 (personal cgt allowance 2014/15) = £62,064.52 x 28% = £17,378.06/2 = £8,689.03 pp under your individual SA returns

Again the above does not take account of any other deductable costings or prev reported CGT losses (for each of you) that may be applied, and is based on the assumptive ownership period being 15 yrs 5 mths in total ... but you now have the mechanics on how to adjust accordingly to fit the true period of ownership pre disposal.

Im sure if I've b&ggered up any of the calcs or missed anything, it'll be quickly pointed out by the eagle eyed....

Hope this helps ... of course please always verify tax with your own practitioner

Holly xx

pcgtron

geri33 wrote: »

My wife and I are in the process of selling our home. This has been our principal residence for 8 years since we got married. Once sold we are moving to my wife's other house (just in her name) which has been let out for the past 8 years and is now vacant. She bought the house in 1998 and she lived there up until 2004 when we bought our current home (joint purchase). It has been let out since and we are in the process of completing tax returns for those years.

Any thoughts would be appreciated.

Thank you.

Erm, are you only just declaring this income for the last 9 years to Hmrc. Fines, interest and your tax bill will also eat some money

holly_hobby

pcgtron wrote: »

Erm, are you only just declaring this income for the last 9 years to Hmrc. Fines, interest and your tax bill will also eat some money

Certainly will ..... well spotted I missed that bit ... but OP at least this will give you more chance of proving beneficial ownership between you ... if of course you declare the rental receipts to HMRC in both names, and any other verification they want re shared liability during ownership etc .....

H x

geri33

holly_hobby wrote: »

Certainly will ..... well spotted I missed that bit ... but OP at least this will give you more chance of proving beneficial ownership between you ... if of course you declare the rental receipts to HMRC in both names, and any other verification they want re shared liability during ownership etc .....

H x

Hi All

Thanks for your responses and Holly Hobby for detailed breakdown. We appreciate there will be late penalties, interest etc but we are sorting ourselves out now! As our main home is still being sold, my wife's 2nd home won't realistically be sold before April 2014. One option we have is to move into my wife's 2nd property and make this our main residence. Therefore, what would be the minimum amount of time after which we could sell this property without incurring any CGT?

Thank you.

chrismac1

No minimum time limits. See my other posts on this subject, but I think there is a stage before we look at CGT namely:

The UK needs to build over 200,000 homes per year for the next 6 or 7 years just to keep up with demand. This year will most likely be 120,000 or less. 2014 will be 140,000 tops.

No reason for any party to put the mockers on the current property boom until the summer of 2015. Banks lending again, but no sign of Carney raising rates for 6 months minimum, and possibly as much as 18.

So there is every chance for you to make another £100k over the next 2 to 3 years at what should be a low financing cost. let's call it £80k. Absolute worst case scenario is a 28% tax bill - and as per the earlier posts (I have a calculator which does both 36 and 18 month scenarios just PM me) your tax bill will likely be much less - so £22k tax on the £80k gain. You're still £58k ahead.

I'm having this sort of conversation with a few clients right now. Up here in the Lakes our market is 6 months or more behind London. Anyone who has rode out the duff markets since 2007 who does not need the cash right now is nuts to sell until the Election in my view.

And I say this as someone who much prefers investing in shares to property and has 3 blog posts as to why this is on my website!