Buying two property's - tax issues

betsie

We have just had an offer accepted on house A, got it for a good price as hasn't been touched for 30 years. We plan to move into it, do it up and then sell it in a couple of years time.

Another house we like has just come on the market which we see as a long term home for us. If we bought this as well (we are downsizing so have the funds) It would go through a few weeks after buying House A I know we will pay the extra 3% stamp duty.

My questions are - can I still reclaim the extra 3% stamp duty if we sell House A within 3 yrs ( even though we bought house B iwithin a few weeks of the first one)?

When we sell House A (say after 2 1/2 yrs) will any profit be taxable (we plan to rent out house B during this time)?
I'm assuming that HMRC might say we bought it with the intent to do up and sell. In this case is it just CGT we would pay on any profit?

We then plan to move into house B and stay in that for several years so I'm assuming a couple of years renting it out shouldn't affect us too much.

Any advice appreciated.

00ec25

SDLT geek can answer your SDLT question

House A
buying with the intent to do up and sell is property development/ property trading and so is subject to income tax, not CGT.

buying a property to live in and at a later date selling it having lived there in the meantime is property investing and subject to CGT

in your case you situation appears grey since you state you will be in occupation of A as your only/main residence for the entire time you are doing it up. On that basis it is more likely you will pass under the radar and be able to claim it was an investment, not a trading activity. As it was then your main residence you will get full private residence relief and so will not pay any tax when it sells (assuming you sell no later than 18 months after you take up occupation in B as your new main residence)

House B
Let from the outset, you will accrue a CGT liability for that period, however, as you will then take up occupation at a later date as main residence you will acquire private residence relief from the date you move in. PRR means you can then retrospectively claim letting relief which may (or may not) depending on the values, result in your let period CGT liability being reduced to zero so when you do finally sell B you may not have to pay any CGT anyway

read the instructions:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

betsie

Thank you for the info but will HMRC argue that " we acquired. a dwelling house and/or spend money on it in order to realise a gain on its disposal"?

Especially if we buy B within a few weeks of buying A. Or can we argue that we bought B as a rental but changed our minds a couple of years down the line?

Thrugelmir

I'd target property b personally. Attempting to time 2 simultaneous purchases with a sale is fraught with problems.

betsie

I only need A to go through at the same time ( it is end of chain) so I have a house to move into when mine completes. B can happy X number of weeks after it wouldn't matter.

Thrugelmir

betsie wrote: »

B can happy X number of weeks after it wouldn't matter.

Is B happy to wait for weeks?

betsie

It doesn't have to be weeks after but I would be the start of the chain for that purchase and the sellers still have to find somewhere. The chain on A is complete and sales proceeding.

SDLT_Geek

The answers to your SDLT questions depend on the exact circumstances and your intentions. When you buy Property A will it be the only property you own anywhere in the world? If so then the 3% surcharge would not apply to that, whether or not you intend to live in it as your only or main residence (subject to the rules about properties held in trust, by spouses etc.)


I agree that when you buy Property B soon after it is likely that the surcharge will apply, especially as you intend to rent it out in the first instance.


It seems unlikely that you would be able to recover the surcharge paid on Property B by virtue of a sale within three years of the purchase of Property A. There are two reasons for this:
(a) There is a condition that on the date of the purchase of Property B you intend it to be your only or main residence. Your immediate plan is to let it out. I understand that HMRC's view is that it is not enough to intend to live in it later after first letting it out. The point is not unarguable though.
(b) Another condition is that at some time in the three years before the purchase of Property B you lived in Property A as your only or main residence. This is tricky too. By the sound of it you would not long have moved into Property A at the time of buying Property B and your declared intention is to do Property A up and sell it rather than live in it long term.

betsie

As we are not married, can one of us buy property A and the other buy B, but both live in A to start with? This would work out better in terms of rental income on B as I do not work so would use up all my PA and only pay 20% on the rest. The downside is only getting one CGT allowance on property A.
How long would we have to live in property A before selling it for any profits to be covered under PPR?

00ec25

betsie wrote: »

How long would we have to live in property A before selling it for any profits to be covered under PPR?

not how it is judged:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64435

https://www.taxinsider.co.uk/1222-Private_Residence_Relief_Is_It_A_Residence.html

the key test is "some degree of permanence, some degree of continuity or some expectation of continuity" which is the phrase established by case law:

http://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02827.html

in your case the trick will not to be noticed by HMRC in the first place, then you'll never need to prove as a "matter of fact" that you created a residence in reality

SDLT_Geek

betsie wrote: »

As we are not married, can one of us buy property A and the other buy B, but both live in A to start with?

In terms of SDLT, a couple who are not married or in a civil partnership are able to buy one property each without incurring the surcharge. That assumes:


(a) Neither of them has any other properties "counting against them"; such as properties abroad, held in trust, held by a spouse, held by a minor child etc.
(b) Each fully owns the property they buy. By this I mean it is not enough that it is registered in the person's "name". They must also be the full beneficial owner of it.