Selling a second home - capital gains tax

flashsnaps

Hi all,


I am asking for a little advice.


My partner owns a house and a flat outright. Our home and a flat (was rented out recently). We would like to sell the flat but are worried we will be stung by capital gains tax.


I read an article on the Telegraph about it being legit to moving primary residency to the flat.
http://www.telegraph.co.uk/finance/personalfinance/capital-gains-tax/10658443/Can-I-cut-my-capital-gains-tax-bill-on-a-second-home.html


If my partner changed her primary residency to the flat and then sold, would she be exempt from the capital gains tax?

HappyMJ

flashsnaps wrote: »

Hi all,


I am asking for a little advice.


My partner owns a house and a flat outright. Our home and a flat (was rented out recently). We would like to sell the flat but are worried we will be stung by capital gains tax.


I read an article on the Telegraph about it being legit to moving primary residency to the flat.
http://www.telegraph.co.uk/finance/personalfinance/capital-gains-tax/10658443/Can-I-cut-my-capital-gains-tax-bill-on-a-second-home.html


If my partner changed her primary residency to the flat and then sold, would she be exempt from the capital gains tax?

You have to move into the flat. You can't just say you live there when you don't really live there.

And no it doesn't avoid paying CGT. It can cut it as you pay CGT for the time that it was not your primary residence.

gingercordial

How long ago did she buy the second property? Did she make the election mentioned in the article to HMRC during the first two years of ownership regarding her choice of residence?

If not, is she prepared to go and live properly in the flat now for enough time to satisfy HMRC that it is genuinely her primary home and not being done for tax avoidance?

Has she ever lived in the flat in the past?

booksurr

So partner (but not you) owns 2 properties - the house you both live in and a separate flat which is in her name only? Therefore there is no "we" if the flat is sold as the tax liability is 100% hers, not "ours"

tax does not recognise "partner" unless prefixed by civil so are you legally married or not? If yes then her main residence is where you both live and that is the end of it.

if not when did she buy both properties?

she has /had 2 years from the date she first became an owner of the second property to make a declaration as to which was her main home (not possible if married). If she did not do so within 2 years it's now too late and she cannot do it retrospectively. If less than 2 years have passed but it is already let then she cannot do it because it is not available to her for use by her as her home - you cannot nominate as "home" a property already let to tenants!

More importantly was the flat at any time in her ownership her real actual main residence where she lived (with or without you)?
If yes she will be able to claim Letting Relief and that, plus PRR, means very unlikely she will pay tax although she is liable for tax

see here for example of what this means in detail and how to calculate it....
http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6

booksurr

HappyMJ wrote: »

You have to move into the flat. You can't just say you live there when you don't really live there.

And no it doesn't avoid paying CGT. It can cut it as you pay CGT for the time that it was not your primary residence.

you have forgotten the 2 year time limit - outside that time everything you have written is redundant

flashsnaps

@booksurr She has owned it for 15years, inherited it. She may have briefly lived in it 10 or so years ago.

booksurr

flashsnaps wrote: »

@booksurr She has owned it for 15years, inherited it. She may have briefly lived in it 10 or so years ago.

that does not answer the questions asked:
- how long ago did she become an owner of the SECOND property

- are you MARRIED?

kinger101

NB - moving into the flat does not automatically qualify it as a residence. Case law has established that residence has a qualitative aspect - there must be some expectation that you'll continue to live there.

flashsnaps

@booksurr she has owned the flat for 15years.


No we are not married.

booksurr

flashsnaps wrote: »

@booksurr she has owned the flat for 15years.
No we are not married.

There were 2 questions - I will now assume she has not become an owner of the house within the last 2 years, therefore there is no possibility at all she can nominate it now as she has owned 2 properties for more than 2 years

on that basis she will be liable for 15 years of gain on the flat.
you have not given enough info for anyone to tell you how much that may be

please provide each individual piece of the following data:
- month and year she inherited the flat
- probate value of the flat
- had inheritance tax been PAID by the estate from which she inherited it? If yes that the valuation is fixed, if not the probate value is not yet proven ("ascertained) and you will need documentary evidence to support the figure you use. (eg a professional valuation at date of death - do you have one?)
-duration in months of the period when she lived there herself as her residence
(you imply she may have done so "10 years ago")
- expected sales value
- expected sales date (month and year)

if you cannot provide all the above then you may as well guess at what she will pay as it cannot be computed without that data

AnotherJoe

There was case reported in here recently where someone moved into their previously rented out house and lived there for a year then moved out and they still got him on the grounds he didn't intend to live there Indefinitely but was doing it deliberately as a tax dodge. IIRC it went all the way to the Supreme Court.

So, if you do move in it will need to be for a considerable time. On the upside she's made loads of money on it so there should a good profit still, so it shouldn't be a "worry" it's a good problem to have, better than being in negative equity.