CGT main residence election

Rural_Puppy

Hello all
I have been reading the HMRC manual on CGT, and want to check my understanding.

I bought my house in 2011. Lived there continuously. Bought another house in 2018, which I intend to live in once it is done up. I am currently in the process of selling the first house, but it is almost approaching 18 months since I bought the second one.

Am I correct to believe:
1. If I do not sell my first house within 18 months of purchasing the second one, I will be liable to CGT on the sale of the first home?

2. As I am still within 2 years of having become the owner of more than one house, can I now nominate my first home as my main residence to protect me against having to pay CGT on it?

It sounds too simple to me, so I would appreciate some sage advice please!
Thank you.

00ec25

property A purchased 2011. Vacated 2018. Empty (?) since then. Now selling

Property B purchased 2018, occupied as main home from purchase

1, sell before rules change wef April 2020 and you can (still) claim deemed occupation period of 18 months. CGT liability then depends on precise dates against the 18 month period (and of course how much annual exempt amount you still have available to cover any unrelieved gain)

2. Yes, but why? Nominating A will make B liable until such time as A is sold. If sold within the 18 month period then a nomination is counter productive since A would be relieved in full anyway.

Rural_Puppy

Thank you for your reply.
I am still rather confused.... possibly due to my lack of understanding of the rules.

In January 2020, it will be 18 months since I bought house B.
My concern is that if I have not sold house A by then, I will have to pay CGT on the gain.
If the simple answer is to nominate house A as my principal home now, then I cannot see a downside.
I am assuming that once House A is sold, I will then only have one principal home, House B, which would then attract a full exemption from CGT as a result.

I wonder if I am missing something fundamental! No doubt if I am, someone more with greater knowledge will point it out.
Thank you.

Keep_pedalling

If you are still living in property A, then it is still your main residence. If not when did you move out?

Rural_Puppy

Keep_pedalling wrote: »

If you are still living in property A, then it is still your main residence. If not when did you move out?

Have we moved out of House A? Well, yes and no.....
House B requires extensive refurbishment, and remains uninhabitable. Accommodation on site is a temporary caravan at the moment. (it is around 80 miles away from House A).
We (sort of) moved out of House A in July 2018, and into rented accommodation near House B as we had a buyer for House A at that time, but that sale did not progress unfortunately. So most of our furniture etc remains in storage.
After the sale failed, we then intended to let out House A, but due to a family illness had to move back in instead temporarily.

So my question is, if we do not manage to sell House A within 18 months of buying House B, how can we protect ourselves from having to pay CGT on the gain for House A?
Thank you.

Pennywise

Rural_Puppy wrote: »

So my question is, if we do not manage to sell House A within 18 months of buying House B, how can we protect ourselves from having to pay CGT on the gain for House A?
Thank you.

CGT is time apportioned, so it will always attract main residence relief for the period you lived in it plus the last 18 months of ownership. So if you owned it for 10 years, lived in it for 8 years, then 9.5/10ths of the gain is still covered by main residence relief. So the taxable gain will initially be zero, even after 18 months, and will then start to rise with each passing year you own it.

Rural_Puppy

Thanks all for your responses, although I am still not clear on one point:

If I decide to elect House A as my principal residence, does that protect it in perpetuity from CGT?
Is there any downside in my deciding to do this?
Thank you!

Pennywise

Rural_Puppy wrote: »

Thanks all for your responses, although I am still not clear on one point:

If I decide to elect House A as my principal residence, does that protect it in perpetuity from CGT?
Is there any downside in my deciding to do this?
Thank you!

No, it can only have main residence relief for the period in which it's your main residence plus the final 18 months.

It's not eligible for main residence relief during any period in which you're not living in it (except for final 18 months).

As I said in previous post, it's all time apportioned. It's not a yes/no situation.

Rural_Puppy

Thank you. I am confused by what I read in the HMRC rules as quoted below.

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2019

"Only or main residence
If you live in, as your home, 2 or more houses, you can only have one main residence at a time for Private Residence Relief.

You can nominate which residence is to be treated as your main residence for any period. Your nomination must be made within 2 years of the date you first have a particular combination of residences. If there’s a change in your combination of residences, a new 2-year period begins. If you do not make a nomination, the question of which is your main residence will be determined on the facts."

My point is that I have two homes, and wish to protect one from CGT. Should I therefore nominate House A as my principal home, and is there any downside in me doing so?
Thanks!

jimmo

You really need to stop obsessing about making a nomination until you have gained some understanding.
Main residence relief is all about the details and I am afraid those you have supplied so far are sadly lacking.
Also, owing 2 properties is next best to irrelevant here. What is important is where you live at any given time.
So far as I can make out the relevant facts are:

1) You moved out of House A in July 2018.
2) You moved into rented accommodation in July 2018.
3) You purchased House B in July 2018
4) You moved out of rented accommodation and back into House A some time later.(Date 1)
5) At some time later still you moved into House B, albeit into a temporary caravan onsite. (Date 2)

Assuming I've got that right then:
1) Up to July 2018 you main and only residence was House A.
2) From July 2018 to Date 1 your main and only residence was the rented accommodation but because you later moved back into House A it is a period of deemed residence in House A. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65046
3) From Date 1 to Date 2 your main and only residence was House A.
4) From Date 2 your main and only residence is House B.

At no time therefore have you had 2 residences (places where you live) and a main residence nomination would be invalid. House A has been your main residence from the date you bought it until Date 2

Now, in practical terms, it is also important for you to understand how time apportionment works.
As an example assume you owned a house for 10 years, lived in it for 7.5 years and sold at a profit of £120,000.
With an exempt period of (7.5 years plus the final 18 months) 9 years and a chargeable period of 1 year you would have a chargeable gain of £12,000. Can you work out how much tax you would pay on that?

Rural_Puppy

Thanks all for the responses. Some slightly more harsh than others! I freely admit to a lack of knowledge in this area, which makes it rather difficult to know what the important facts are. I am grateful for the responses so far which have given me further food for thought.

It seems to me that the key point is not actually owning more than one property, it is which property we have actually been resident in that counts.
I now wonder if we have ever actually "moved out" of House A at all for CGT purposes.

As has been pointed out, the time in the temporary rented house near House B does not count, as we subsequently returned to live in House A. We have still not actually moved into House B, as it requires more structural work to make it habitable. We are now back living in House A until it sells, with temporary periods in a caravan at House B to oversee the building work.
Our Doctor, Dentist and Vet are still associated with House A. We have spent a lot of time at House A, since buying House B, as we have business and other interests near House A. Even while living in the temporary rented house near House B, we would have been back at House A at least once a week on a regular basis.

CGT gurus out there - does this look like we are still resident at House A, and therefore can legitimately claim full residence relief (plus another 18 months once we actually move out)?
(and do please be gentle with me, I have never dealt with CGT before, and find it all rather complex and confusing!)
Thank you.