CGT and PPR relief - PLEASE HELP

rudedog_2

Any advice would be greatly appreciated. Here is the story

• Bought property 1 in 1994 for £100k
• Lived there until 1998 at which time I moved to Australia to go to University. Rented the property whilst I was away.
• Returned to the UK in 2001 and moved back in to property 1.
• Bought property 2 in 2003 and moved there until January 2007 when I moved back in to property 1 (which brings me up to date)

(i hope you can follow this...)

Ok, since I moved back in to property 1 in January 2007, I have spent approx £30k improving the property and I now wish to sell. My estate agents thinks it will sell for £400k, giving gain of £300k. My question is what CGT reliefs will be available to me if any? Taper? Indexation? PPR?

I have never nominated either property as PPR.

Is it important that I am resident of property 1 while I sell, and not move back in to property 2 over the selling period ?(ideally, due to personal reasons this would be preferred)

I'm very confused by the PPR rules, so any help would be appreciated.

Regards

dog

MarkyMarkD

As I understand it you are eligible for PPR for the period you actually used property 1 as your main residence, PLUS the last 3 years of ownership.

So that boils down to quite a lot of the gain being subject to CGT:

You've owned it for 13 years but you had a different PPR for approx. 4 years and you were abroad and it was let for 3 years.

It seems to me that 7 out of your 13 years would be eligible - plus the last 3 years because they always are - making 10 years out of 13 and therefore 3/13 of the gain is subject to CGT.

I don't think it matters whether you stay in property 1 or not - as long as it's been your PPR then it's eligible for the relief.

Your gain is NOT £300k. Your gain is £300k LESS any money you've ever spent on improvements.

There's probably some taper relief involved as well, but not indexation as it was bought after 1988. I don't know enough about these so I'll let someone else expand on these areas.

rudedog_2

thanks for the reply...

just to be clear. I am currently living in property 1 (the property I am selling), and have been since Jan 2007. Would this not mean that it is my PPR?

If not, and I do have a CGT liability, would I get all the other reliefs (taper etc)

I'd appeaciate if someone could explain how to estimate my potential tax bill. (what releifs come off where.. etc)

Cheers

dog

clutton_2

why not just ask the tax man ? they are very helpful.

MarkyMarkD

@rudedog

Just because something is your PPR right now doesn't make it your PPR throughout the term of your ownership. And hence CGT may apply, and so taper relief etc. may also apply.

silvercar

You get relief for the time it was your PPR and the last 3 years of ownership. If you have two homes (eg mid-week flat and country weekend pad) you can make an election, within the first two years of owning both, which is to be counted as your PPR. Once a property is let out it clearly can't be your PPR and then the decision is based on fact.

Looking at property 1. It was your PPR for 4 years, then you let it for 3 years, then it was your PPR for 2 years, and now it is your PPR again.

If you sell at the end of the year, you will get PPR exemption for 9 (including the last 3 years of ownership. That is 9 out of 14 years ownership (by the time you sell).

The gain will be 270k (allowing the 30k expenses). You can also knock off selling costs. So the 270 reduces to 96.4k for PPR relief at 9/14ths.

As the property was let and had been your PPR, you also get letting relief, this has a max relief of 40k. so the 96.4 becomes 56.4k.

Taper relief for 10 + years of ownership is a max of 40% relief, leaving you with 60% of 56.4 ie 33.8k

If you have not used it elsewhere you get a CGT allowance of 9.2k; reducing the 33.8k to 24.6k. This would be taxed at your marginal rate, at 40% this would be a touch under £10,000.

Some points: The actual calculations are based on months of ownership etc, so these figures are approximate.

I don't know whether all your improvements would qualify.

Where you live now is not so important for property 1, as you get exemption for the last 3 years of ownership anyway.

Hope this helps!

CLAPTON

As silvercar points out the last three years are exempt anyway and so there is no advantage your living in property 1 at the moment.

In fact if you are living in property1 now then you are not living in property 2, which means when you come to sell that property there may be a CGT liability...so better to living in property 2 continuously as your PPR.