Capital gains tax two properties

JIL

We saw a property last year that ticked all our boxes, there were a few people interested in it so we saw a financial advisor and worked out that we could keep our existing property, put in an offer, pay the higher stamp duty, do some much needed work on the property, sell our current home and then move into the new property.

It has been a long road and we are to exchange in the new year. Probate was involved.
I dont intend to let either property out.
I intended to put our house on the market after a couple of months.

By chance yesterday I read this article

https://www.dailymail.co.uk/money/mortgageshome/article-7781103/Second-home-buyers-warned-watch-new-capital-gains-tax-grab.html

I'm now seriously concerned, it's not something that we were made aware of, or by my own admission considered.

Any thoughts?
Thanks for any advice.

SuperHan

JIL wrote: »

We saw a property last year that ticked all our boxes, there were a few people interested in it so we saw a financial advisor and worked out that we could keep our existing property, put in an offer, pay the higher stamp duty, do some much needed work on the property, sell our current home and then move into the new property.

It has been a long road and we are to exchange in the new year. Probate was involved.
I dont intend to let either property out.
I intended to put our house on the market after a couple of months.

By chance yesterday I read this article

https://www.dailymail.co.uk/money/mortgageshome/article-7781103/Second-home-buyers-warned-watch-new-capital-gains-tax-grab.html

I'm now seriously concerned, it's not something that we were made aware of, or by my own admission considered.

Any thoughts?
Thanks for any advice.

You only have to pay capital gains tax for the time you didn't live there. And you get the last 9 months (post April) exempt from CGT too.

So if you sell within 9 months of moving out, no CGT to pay. If it takes longer, then you have to look at what proportion of ownership falls outside of this time lived in plus 9 months.

For example, let's say you've owned the house for 10 years when you sell it (120 months).

You lived there for 9 years (108 months), and the last 9 months are exempt (108+9=117).

You then take the capital gain on your house (the amount you sell it for less what you bought it for) and times it by the chargeable period (i.e. 120-117 = 3 months out of 120 months). So take 3/120 of the gain, and then you pay capital gains tax at 18% or 20% on that amount if it's more than £12,000 of gain (or more than £24,000 if you jointly own it).

So I wouldn't worry too much, unless you hold on for a long time after you move out, any tax charge should be minimal.

JIL

So if I stayed in our current house until I sold and exchanged then I could avoid the Capital gains?

It would be doable, I really dont want to do anything wrong. Our intention was always to do some much needed improvements to the new property before moving in anyway.

We had put together a bit of a plan on dates and hoped to sell the current property around April.

When I read this yesterday I was concerned that it hadn't been mentioned and that all the extra hours and saving we had done over the past few years would be going to the taxman.

Many thanks for your advice Superhan, it is very much appreciated.

p00hsticks

JIL wrote: »

So if I stayed in this house until I sold and exchanged then I could avoid the Capital gains?

You would avoid potentially paying CGT on the current property, but could be setting up a future capital gain liability on the new property for the period between you buying it and moving in, as you can only have one residence exempt from CGT at a time. That wouldn't be realised until you came to sell the new property, and who knows what the rules might be then.


If you have more than one property that could potentially be considered as your Principal Residence (and therefore currnetly exempt from CGT) you need to let HMRC know which one you want within (I think) two years of getting the second property.

Crashy_Time

JIL wrote: »

We saw a property last year that ticked all our boxes, there were a few people interested in it so we saw a financial advisor and worked out that we could keep our existing property, put in an offer, pay the higher stamp duty, do some much needed work on the property, sell our current home and then move into the new property.

It has been a long road and we are to exchange in the new year. Probate was involved.
I dont intend to let either property out.
I intended to put our house on the market after a couple of months.

By chance yesterday I read this article

https://www.dailymail.co.uk/money/mortgageshome/article-7781103/Second-home-buyers-warned-watch-new-capital-gains-tax-grab.html

I'm now seriously concerned, it's not something that we were made aware of, or by my own admission considered.

Any thoughts?
Thanks for any advice.

Property is such an easy tax grab, they won`t be able to resist dipping in more and more IMO.

G_M

......worked out that we could keep our existing property, put in an offer, pay the higher stamp duty, do some much needed work on the property, sell our current home and then move into the new property.

How long do you expect the "much needed work" to take? A few months? A year?

During that time your current property will presumaby still be your main residence.
So the only period that might be relevant for CGT might be from completion of the much needed work to actual sale of proprty 1 - a few months if you start advertising in advance.
And how long have you lived there? 1 year? 5? 10?

Frankly even if there IS some CGT due it is likely to be minimal and fall within the annual allowance (12K at present).

As for property 2, again, how long for the "much needed work" and how long will you remain there? As above, any CGT is likely to be minimal/

I'd ignore it completely so far as your decision to buy is concerned. OK, in due course you may need to do a bit of maths, and maybe even pay a modest amount, but it won't be enough to be relevant in relation to the costs of moving!

00ec25

G_M wrote: »

How long do you expect the "much needed work" to take? A few months? A year?

During that time your current property will presumaby still be your main residence.
So the only period that might be relevant for CGT might be from completion of the much needed work to actual sale of proprty 1 - a few months if you start advertising in advance.
And how long have you lived there? 1 year? 5? 10?

Frankly even if there IS some CGT due it is likely to be minimal and fall within the annual allowance (12K at present).!

leaving aside the exempt allowance (which i agree is much the simpler way to avoid having tax to pay) you could claim ESC D49 delay in taking up residence due to "alterations or redecoration"

In a classic case of tax "simplification", when they reduced the deemed occupation period from 18 to 9 months from April 2020, they failed to consider that now overlaps with the 12 months available under ESC D49, and therefore failed to amend that at the same time.
So if you are careful, you can spin it out for an additional 3 months making it 12 in total, not 9

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65003

exchange contracts for purchase of B in say Feb 2020 you have until Jan 2021 to take up residence as the CGT clock is based on exchange of contracts, not date of completion of purchase. Therefore you can simultaneously own 2 properties and be exempt on both

JIL

G_M wrote: »

How long do you expect the "much needed work" to take? A few months? A year?

During that time your current property will presumaby still be your main residence.
So the only period that might be relevant for CGT might be from completion of the much needed work to actual sale of proprty 1 - a few months if you start advertising in advance.
And how long have you lived there? 1 year? 5? 10?

Frankly even if there IS some CGT due it is likely to be minimal and fall within the annual allowance (12K at present).

As for property 2, again, how long for the "much needed work" and how long will you remain there? As above, any CGT is likely to be minimal/

I'd ignore it completely so far as your decision to buy is concerned. OK, in due course you may need to do a bit of maths, and maybe even pay a modest amount, but it won't be enough to be relevant in relation to the costs of moving!

Thankyou for your reply.

We have been in the current house for 28 years, cant see us moving again but you never know.

I think we could easily live around the work if need be. I believed when I read the article we had 9 months to sell the house. If need be we wont move in until the old house is sold.
Appreciate all the advice.

AnotherJoe

JIL wrote: »

Thankyou for your reply.

We have been in the current house for 28 years, cant see us moving again but you never know.

I think we could easily live around the work if need be. I believed when I read the article we had 9 months to sell the house. If need be we wont move in until the old house is sold.
Appreciate all the advice.

So this is a non issue then and certainly no need to rough it in the new house either given you won't be leaving until pushing up the daisies.
Even if it took a year, then that's 1/28th the capital gains which reduce it either to zero or well below the £12.5k level (and it seems there's two of you as owners so you'd need more than £25k gains befire you even paid a penny.
And same for the new house assuming you remain there a similar time. Get in and grab your dream house and stop worrying