Owning 2 houses & CGT rules?

mcooke999

Yes the building has not yet had it's final sign off from Building Control and is not yet subject to council tax either. 

Ok if I've understood the 3 year absence rule correctly then you're due relief on periods up to 3 years if you've not lived in it as long as you've lived in the property at some point before and after? This is in addition to the final 9 months relief permitted?

Jeremy535897

mcooke999 said:

Ok if I've understood the 3 year absence rule correctly then you're due relief on periods up to 3 years if you've not lived in it as long as you've lived in the property at some point before and after? This is in addition to the final 9 months relief permitted?

Lived in as your main residence, yes.

mcooke999

Thanks again Jeremy.

Sorry to keep throwing new questions into the mix but regarding the 2nd property, they've actually owned it for 4 years now and it's nearly finished. Once it becomes their primary residence, I assume that the past 4 years will be subject to capital gains tax and any subsiquent years they are living in it will be covered by PRR all other things being equal?

So for example lets say they bought it for £250k, spent £250k converting it over 4 years. Then they live in it for another 4 years as their primary residence before selling for £750k... I'm assuming that their CGT liability will be based on 1/2 of the £250k profit, so £125k less their combined CGT allowances of £25.6k (assuming this doesn't rise)? So they would owe 18% or 28% or £99.4k depending on if they were basic or higher rate tax payers? Am I right? I just want to understand the rules.

Jeremy535897

You may find this page helpful:
https://www.gov.uk/tax-sell-home/absence-from-home
You will see there is a further exemption for 2 years during renovation at the start of ownership, but that will not apply because it won't have been occupied as their only or main residence in that period.

On your figures, the £250,000 conversion costs would all have to be improvements, rather than maintenance, to qualify for a deduction, but in the circumstances you have described, that is unlikely to be a problem. The two CGT exemptions for 2020/21 add up to £24,600, but they are indexed. The tax rate would most likely be 28%, as the chargeable gains net of annual exemptions are added to taxable income to establish what the rate of tax on the gains is. You would therefore be best to assume that the CGT would be about £28,000. The tax is due within 30 days of the completion of the sale.

mcooke999

Thanks again, I think I understand now.