Will I need to pay capital gains or not

Alkmatt182

Hey folks, first time posting a question on any forum.

Basically I bought a house last July (2015)that needed some modernisation. A fairly standard 2 up 2 down, for myself and girlfriend to get on property ladder. Shortly after purchasing my girlfriend found out she was pregnant. So we decided (mainly my girlfriend decided) the house was a little small for a new baby and wanted something bigger. Our baby daughter arrived in March this year and I still hadn't finished doing up the house so we have been living with my mother. Now I'm finally at the point of completing the hours and will be looking to sell. My question is will I have to pay capital gains tax as this is the only home I own but I will not have actually lived in it since I bought it.

Any help or advice would be greatly appreciated. My mother's house is a council house if that makes any odds, and I took out a 2 year fixed rate mortgage on the house I bought which ends in July 2017

fudgecat

Not an expert, but you do not have to pay capital gains on the property that is your stated domiciled residence. If mail has gone to the house you are doing up, then it is your residence if you say so. If you choose to sleep elsewhere, that is your business. Putting house on the market too soon may have implication with mortgage - either yours or your possible buyers. Babies don`t take up much room, so it might be worth sitting tight a little longer and selling next year?
Someone more knowledgeable will tell me if I`m wrong, I`m sure!

Alkmatt182

Thanks for the reply, I likely won't be putting the house on the market until spring so might look to move in for a few months but spend majority of my time at mother's for the baby.

booksurr

your position is simple: will you or will you not be found out? That is the gamble you must decide on whether to take...

Facts:
CGT is 100% avoided by claiming Private Residence Relief. For as long as it was your main/only residence then PRR gives you 100% relief against any CGT liability
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

A pre requisite for PRR is that you must have occupied the property in reality. An intention to occupy (such as you state here on this thread) is not enough.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64465

your actual "home" will be your mother's. That will not count on paper since you do not have any legal interest in it as only your mother is the council tenant and you are not. Therefore on paper you will indeed only have one home, albeit one that you do not actually live in. So the question is can you "prove" you live there even if in reality you do not? That sort of fiddle can be done relatively easily as the sort of issues which are reviewed to "see" where you live are fairly straightforward and easily fudged...
- correspondence address
- electoral registration address
- registered with doctor and dentist in that area
- wife and family lives there
- friends and relatives expect to be able to contact you there
- it is a practical place from which to commute to your place of employment

There is no legal definition of "main residence" but there are lots of legal cases which define when it is not a residence and the amount of time you did (or did not) actually live there is not a major consideration. The test applied is "degree of permanence, continuity, or expectation of continuity to justify describing that occupation as “residence”. You could live there for 2 days and win, in contrast people have lost in court (Piers Moore v HMRC) having lived there for over 8 months because there was no intention to make it permanent. That very obviously is the elephant in room of your case.
http://www.rossmartin.co.uk/private-client-a-estate-planning/capital-gains-tax/1169-cgt-private-residence-relief-temporary-homes

Speculation
you say that you will "occupy" the property for a period in the future. That may well be enough if you genuinely fulfil all the other requirements to show that the property was in fact your "only/main" residence. Clearly the reality of that is it will be a tall order for you to genuinely claim such status given what you have posted on here. But who will know differently and will they report you, that is the question?

so your position could be:
a) for the period you did not occupy it you will be liable for CGT, You could attempt to claim the 12 month exemption period for a property undergoing development if you want to reduce that liability?
b) once you occupy it you will be exempt from that date onwards. You will then always get the final 18 months of your ownership exempt irrespective of whether you lived there in those 18 months or not. So having established "occupation" you then have 18 months on top to sell the property.

Let the manipulation begin....