CGT - Property Disposal Questions

Ada1

Hi,

I have a slightly complicated CGT question and I haven't been able to work out what my CGT exposure is from my internet searching.

Situation:
I have a primary residence and also a freehold house which is let out which was purchased 4 years ago. The BTL property is divided in to 2 separate flats each of which is registered on electoral roll, with council etc and was configured in this way at the time of purchase. I'm trying to work out my CGT exposure under a couple of different scenarios.

1) I sell the BTL in same fashion as I bought it. <-- this seems straightforward - I believe my liability is any profit minus my allowance.
2) I sell my current house and move in to the BTL <-- this is where I get lost...
- would the act of stopping renting and moving in count as a disposal?
- would doing building work to reestablish a single dwelling instead of the two flats count as a disposal?

Would appreciate any pointers.

Thanks.

HappyMJ

You could sell the flats in two different tax years to benefit from two lots of CGT exemptions.

If you own the freehold to both flats then you could sell them as a leasehold with you continuing to own the freehold.

CLAPTON

Ada1 wrote: »

Hi,

I have a slightly complicated CGT question and I haven't been able to work out what my CGT exposure is from my internet searching.

Situation:
I have a primary residence and also a freehold house which is let out which was purchased 4 years ago. The BTL property is divided in to 2 separate flats each of which is registered on electoral roll, with council etc and was configured in this way at the time of purchase. I'm trying to work out my CGT exposure under a couple of different scenarios.

1) I sell the BTL in same fashion as I bought it. <-- this seems straightforward - I believe my liability is any profit minus my allowance.
2) I sell my current house and move in to the BTL <-- this is where I get lost...
- would the act of stopping renting and moving in count as a disposal?
- would doing building work to reestablish a single dwelling instead of the two flats count as a disposal?

Would appreciate any pointers.

Thanks.

if you move into the flats then NO this doesn't count as a disposal:

a disposal would be if you sold one or both

booksurr

1) you would be liable to CGT and able to claim only your personal allowance

2) you would not be liable to CGT on moving in as the property you moved out of was eligible to PPR exemption and the property you move into has not been disposed of yet.

Obviously when you do eventually sell it (ie. the ex BTL) then you would be liable to CGT as only part of your ownership period of that property had been exempt occupation.

Mojisola

Ada1 wrote: »

The BTL property is divided in to 2 separate flats each of which is registered on electoral roll, with council etc and was configured in this way at the time of purchase.

CLAPTON wrote: »

if you move into the flats then NO this doesn't count as a disposal:

a disposal would be if you sold one or both

Would Ada be able to claim both flats as her primary residence?

Ada1

Thanks for the replies

To clarify something that seems relevant - there are no leaseholds / titles on the flats: just a freehold on the whole building. It's a bit of an unusual situation.

This means I cant sell one at a time unless I split the freehold which I presume would be a disposal.

If I was to move in I'd be looking to knock the flats together and live in the building as a single unit.

On this point:

Obviously when you do eventually sell it (ie. the ex BTL) then you would be liable to CGT as only part of your ownership period of that property had been exempt occupation.

That's interesting... is this worked out pro-rata? Have to confess this passed me by... I thought that selling a primary residence = no CGT irrespective of tenure (notwithstanding v short stays for gaming of CGT purposes!)

booksurr

Ada1 wrote: »

Thanks for the replies

To clarify something that seems relevant - there are no leaseholds / titles on the flats: just a freehold on the whole building. It's a bit of an unusual situation.

This means I cant sell one at a time unless I split the freehold which I presume would be a disposal.

If I was to move in I'd be looking to knock the flats together and live in the building as a single unit.

why do people never disclose pertinent facts in their opening post!

so, you own a single property which is currently split into self contained flats, one of which you live in and the other(s) you let.

you are the sole (?) owner of the entire building so on that basis the earlier answers to Q1 are wrong. You are already liable for CGT as part of your home is already let and therefore you have lost your right to claim Private Residence Relief on the part that is let given there is but a single freehold so, as you say, you cannot sell off a single flat at a time.

you situation therefore appears to neatly fall into the scenario where you split your liability based on % of the property you occupy v that let

Ada1 wrote: »

On this point:
That's interesting... is this worked out pro-rata? Have to confess this passed me by... I thought that selling a primary residence = no CGT irrespective of tenure (notwithstanding v short stays for gaming of CGT purposes!)

you get PRR for the time you lived there as your only/main home

if you have no more than 1 lodger (note lodger not tenant) you retain PRR, if you have 2 or more lodger or 1 or more tenants you lose PRR and become eligible for letting relief instead. LR is capped at £40k

I suggest you read helpsheet 283 https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet
and perhaps this example from earlier http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6

if you convert the building back into a single residence and sold it at that point you would still be liable for CGT based on the time it was split into self contained tenanted flats given at least one of them was tenanted.
eg: owned 10 years. split into 2 flats, one as home, one tenanted. Tenant lived therefore for years 2-7 (6 years) in year 8 you converted it to a single residence and sold it in year 10. (For sake of simplicity I have kept away from the final 18 months period - see example above for what that means!)

so 50% is let for 6/10ths of your ownership period and you would therefore need to do the CGT LR calculation using that fraction

CLAPTON

Can you make the situation absolutely clear

do you currently live a property that is quite separate from the two flats?

Ada1

Thanks again for the responses - I tried as well as I could to explain the position in my first message but I guess I failed! Will try again.

I have 2 properties.
Property A - I live here. Primary residence. Have been here for 10 years. Owned as freehold with a residential mortgage.
Property B - bought 4 years ago. Configured as 2 flats. Both on electoral roll, separate utilities etc and was like this when I bought the property. Own freehold of building with a BTL mortgage. There are no leaseholds in existence for the flats. Both are let out.

The options I'm thinking of are:
- Sell property B - take the hit on CGT
- Sell property A (primary residence) - move in to property B and knock the 2 flats together so it's a single dwelling again

I'd be happy (and would intend) live in either property for the foreseeable future. The only reason I'd go through the aggravation of selling my current primary residence and doing the building work on property B would be if it helped my CGT position.

I've seen some references in online articles that suggest that the definition of disposal is not always easy to understand and that in some instances building work might constitute disposal. I don't know if this is accurate but it made me wonder if changing the configuration of the property (either through changing from a rental to my primary residence or the building work to knock the building back in to a single residence) would be a disposal.

I guess other options might be to create leaseholds on the 2 flats and sell one but this seems like yet more complication that I can probably live without.

xylophone

You sell your current PPR - no CGT. You repay the mortgage on the BTL with the sale proceeds of the PPR so that you own the BTL property outright?

You evict your tenants from the flats and convert the property into one dwelling which becomes your PPR?

booksurr

xylophone wrote: »

You evict your tenants from the flats and convert the property into one dwelling which becomes your PPR?

he would still be liable to CGT for the period when he did not live in it as his home

you cannot escape CGt by simply making it a home at some point during ownership. You only get PPR whilst your were physically in occupation as a home (or had a valid election in place against it)