Capital Gain Tax Question.

Greentea

I have a second property rented for 2 years and 9 months. Im planning to put it on the market next month and reinvest the month in another rental property. The property has increased in value considerably and i want to avoid CGT.

Should I move into the property myself to be sure of avoiding CGT.

Will the next property be free from CGT for its first 3 years?

thanks

antoniomontana

i think if you make out that its been your main residence for at least 12 months than you wont have to pay any CGT.

Greentea

I was under the impression you dont have to pay any CGT until after the third year?

antoniomontana

hmm it seems its 2 years
http://money.msn.co.uk/investing/Insight/SpecialFeatures/StartInvesting/capitalgainstax/default.asp

If you own a second property, in the UK or overseas, whether it is a second home or let to tenants, it will almost certainly be subject to CGT if you make any money when it is sold. You have the choice which to nominate as your main residence, and this must be done within two years of acquiring your second home. You can also change your mind at a later date and nominate a change of main residence from a specific date up to two years before the date at which you notify the Revenue. This offers some valuable tax-planning opportunities if you decide to sell one of your properties.

Greentea

ooops, i havent nominated this as my main residence and ive owned it 2yrs 9mths. Is there any way i can avoid or minimise CGT?

dougk_2

If you live in the property for a period of time (6 months +) you can claim it was your main residence. However you must be able to prove you lived in the property (produce bills from council tax etc. Its also best to be on the electoral register at that address).

You will then be exempt from CGT for the last 3 years.

Debt_Free_Chick

Agreed. You cannot simply nominate this second property as your Principle Private Residence (PPR). You must have occupied it on this basis too. The option to elect which of 2 properties is treated as your PPR is only available if you have actually had 2 PPRs ... then you nominate which you want treated as your PPR for tax purposes.

You say this is your second property, do you live in the first one, with that (currently) as your PPR? If you nominate the second property as your PPR, then you will lose PPR status on the one you live in. The tax man won't let you "have your cake & eat it".

It sounds to me as though you have actually occupied the second property as your PPR so you don't have the option to nominate it as such.

And ... avoiding CGT? It's very, very difficult to do so and requires complex & expensive tax planning advice.

Remember when calculating any gain that the purchase price is indexed. And you get an allowance of £8,500 each year, for CGT. There may be other allowances too e.g. cost of selling (estate agent fees, solicitors fees). I'm not sure on this latter point, so you'll need to do more research.

Have you "crunched the numbers" to see what the potential CGT might be?

HTH

Greentea

When I bought the second property I planned to move in after selling the first property. The first one (after 2years on the market) didnt sell. So I remained in the first property and rented out (the taxman knows) the second.

I have spent a bit on the second property and updated it since buying it, there is presently about £60k increase on the original purchase price.

So it looks like me, that i cant avoid this tax? Since even if i stop renting it and nominate this as my primary residence (what do i tell the tax man about the first house?) i will have owned the property, after my six months of residence, for a minimum of 3 years 3 months. And therefore will be liable for 3mths CGT?

Is this correct?

divadee

As far as i am aware its not done on months you will pay cgt on the profit.


I posted the below on a different thread, it might help you a bit.

you could get taper relief if you held the property for over 3 years. at 3 years you get 5% relief 4 years 10% and 5 years 15% etc....

have a look here for loads of info on taper relief

right is the property jointly owned? if it is you both have your 8500 allowance, so you can have 17k of profit before you pay tax.

If you have owned the property for more than 3 years you will be eligable for taper relief see above for the brackets.

you also have to take out all of you costs and leave just the pure profit. so for example you sell it for 200k you had a mortgage of 150k on it and your fees stamp duty, etstate agents, solicitors costs moving etc came to 20K your profit would be 30k

you would get 17k tax relief or 8k if you own it singlely. then you would have to pay basic rate tax on the profit, unless it takes you into the higher tax bracket with the profit, which you would then have to pay higher tax on it.

this only my opinion and should not be taken as professional advice. the best thing to be would be call the inland revenue and ask their advice, then you can tailor it to you. without knowing more there are to many ifs buts and maybes.

dougk_2

3mths CGT would be very low anyway so it would be better to move into the property.