CGT question not yet selling

motorisedman

My wife and I purchased a buy to let property a little short of 2 years ago as an investment property which has since been occupied by a tenant who is a family friend. The purchase price was £132000 and I would estimate it is currently valued in the region of £160000. My intention has always been at some point to extend the property and my tenant was and is happy for this work to go on around him. Although it wasn't our intention at the time of purchase we now plan to sell our current house then pay off the buy to let mortgage and move into the property as our primary residence when the building works are complete and our tenant will also stay at the property on a rent a room basis.
I am a little concerned about what my potential CGT liability if any would be. Whilst I have no intention of selling the property (I understand this is when CGT is normally paid) I have been advised that I would potentially have a CGT liability in relation to the difference in purchase price and value of the property when it becomes our main residence. I intend to carry out a fair amount of the building works myself and am concerned that if I am to do so I may be shooting myself in the foot as the cost of purchase/building works may end up considerably less than the potential value on completion of the works and I would be unable to offset my time/labour therefore exposing myself to a higher CGT liability. Is the advice I have been given correct and when if at all would I be required to pay any tax given that I have no plans to sell in the near future ? I am unsure whether it would be better to complete the works prior to it becoming our primary residence (my preference) or reduce my liability by moving in prior to the building works which would be difficult. Many Thanks in advance for any advice.

00ec25

there are many webpages that explain CGT since all you want is a factual explanation
https://www.gov.uk/capital-gains-tax

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

it has not been your main home for the entire time you have owned therefore it will always have a CGT exposure

selling price - original cost - cost of improvements = gross gain

gain gets PRR relief for the period it was your main home, it gets no relief when it wasn't.

so the gain is reduced by a bit of relief, the remaining value is taxable

as for improvement costs, an extension is by definition an improvement. All purchases associated with it be "costs" BUT NOT your own labour since there is no cost to that otherwise we would all charge ourselves out at £1M per minute and pay no tax.


come back when you have questions of understanding facts you have read, rather than simply have not read.

Pennywise

No you can't offset your own labour costs, but likewise it makes no sense to pay someone else just to save a bit of tax. If you spend £25k on a builder, then your maximum saving in tax is just £7,000 (at 28%), so it still costs you £18k, for something you could have done yourself! Only you can decide whether to do the work yourself, but as I say, it will never "cost" you more to do it yourself - you have to make your own decision as to whether you have the time and inclination to save the cost of the builder (which will always be at least 72% of their actual cost even after tax relief).

laticsforlife

From what you have said this is my thinking on the CGT position;

Existing house to be sold = your PPR, no CGT on this.

B-2-L property. When you move in, you say you aren't selling it so it then becomes your PPR and all the years you live there there is no CGT liability.

The longer you live there the more time it keeps being your PPR (fractionally speaking).

There is I guess a CGT liability when you come to sell it, but we're talking 2 years out of how many years?, probably not worth worrying about as nobody will know either, and probably when you relieve it down and split it between you and your wife then deduct 2x the annual (£11k or so) exemption, there's probably nothing left to charge.

laticsforlife

00ec25 wrote: »

come back when you have questions of understanding facts you have read, rather than simply have not read.

Jeez who punched you as a child to make your answer so nasty.

That's not how forums work, help if you want, ignore if you don't.

If you haven't something nice to say, shut up?

BoGoF

laticsforlife wrote: »

Jeez who punched you as a child to make your answer so nasty.

That's not how forums work, help if you want, ignore if you don't.

If you haven't something nice to say, shut up?

Oh the irony.

I think the person you are attacking has a vastly superior knowledge on the subject than you and are at least referencing an official source not just 'their thinking'.

[Deleted User]

laticsforlife wrote: »

Jeez who punched you as a child to make your answer so nasty.

That's not how forums work, help if you want, ignore if you don't.

If you haven't something nice to say, shut up?

Wow! You clearly are not aware just how many times this poster has answered similar questions -dozens at a low estimate.

I have spent many years in tax, both in and outside HMRC, and regard this person as an expert in CGT (there are others).

Perhaps the op will come back? At that point I am sure that the appropriate advice will be forthcoming.

tebthereb

The sale of the main residence and moving into the let property should not trigger CGT in itself; as others have said.

The former should attract relief in full (assuming its only been occupied as the main residence throughout).

The latter could, as others have said, attract little or no CGT. It will depend on future events but perhaps not a great deal to worry about right now. There is a “lettings relief” also which may help, although this is under attack and I have not had to consider yet how it would work in circumstances like yours in its current guise I believe you would remain eligible with shared occupancy.

A deduction would not be permitted in calculating CGT for an individual’s (your) time in working on their own property. However, if for example you operate through another entity such as a company there may be opportunities here to effectively get a deduction for your time. There are other potential issues here so you would need to speak to an advisor —as above it might not be worth it.

00ec25

tebthereb wrote: »

There is a “lettings relief” also which may help, although this is under attack and I have not had to consider yet how it would work in circumstances like yours in its current guise I believe you would remain eligible with shared occupancy.

in the context of the property and time-scales mentioned by OP, lettings relief is irrelevant as it will be abolished in April 2020 and will not have a retrospective element, it simply vanishes

https://www.gov.uk/government/publications/private-residence-relief-budget-2018-brief