Owning 2 homes for 4 years. CGT and PPR Query.

holliator

I own a house near London and can retire in 4 years. I have seen a doer upper house in the countryside I can afford and wish to use as a weekend home until I retire at which point I would like to sell my London home and move permanently to the country.
I have improved my current house significantly in the last 3 years adding £200k in value. I intend to improve the country house considerably and again add value.
I want to avoid the impression of flipping houses and hence avoid capital gains tax.

With this in mind is there an optimum time to select the country house as primary residence. My understanding is I can switch ppr in 2 years, have a further 18 months grace to sell London home and be liable to cgt on any proportional gain from this point albeit offset by my annual personal cgt limit of about £11k.

silvercar

With this in mind is there an optimum time to select the country house as primary residence. My understanding is I can switch ppr in 2 years, have a further 18 months grace to sell London home and be liable to cgt on any proportional gain from this point albeit offset by my annual personal cgt limit of about £11k.

Yes, but the gain on the 6 months that wouldn't benefit from PPR + last 18 months rule, would be calculated as a proportion of the total gain since you owned it. So if you had then owned it for 20 years, 19.5 years would be exempt so half a year divided by 20 years would be one fortieth of the total gain since you bought it (less buying and selling costs and capital improvements) less your CGT allowance if not used elsewhere.

You need to make a declaration within the first 2 years of owning both as to which is to be considered your PPR, you can then change this when needed. If you don't make that declaration then the PPR is evidenced by fact ie where you actually live etc.

The other, slightly morbid, point is that you don't pay CGT on death; so if you never intend to sell your country pad, you will never have to worry about a CGT liability on it and nor will your heirs.

holliator

I see. I have owned it about 3.5 years so in 4 years time I would be liable for 6 months/80 months x possible £200k gain after exes in value so around 15k. Then the net payable afer deducting my cgt allowance.

Heres hoping personal cgt allowance is about 15k by 2018/2019!

madgagoo

silvercar wrote: »

You need to make a declaration within the first 2 years of owning both as to which is to be considered your PPR, you can then change this when needed. If you don't make that declaration then the PPR is evidenced by fact ie where you actually live.

Not quite, you will have to make an election within 2 years of having 2 residences, rather than just owning 2 properties. I.e. You could buy a house and not live there for a year, then move some stuff in and start living there and then make the election within 2 years, giving 3 years in total. There is a subtle but important difference between having a house and a residence.

So you could buy the country house, spend 6 months doing it up and then have 2 years to make an election. You would need to be careful to not 'move in' and start having a residence though. For example if you stayed there at weekends while renovating it, it has probably already become a residence and the 2 year clock started.