I need some help please

Al1976

Any help on this would be much appreciated.
Myself, my wife and my two children have lived with my mother in her house since my father died in 2012. We moved in with her because her house was much bigger tha ours and could accommodate all of us. When we moved in we rented out our smaller 2 bed house and have had the same tenant since then.
When COVID broke my mother became worried about us all living together and we put in a planning application to extend her house at the side in the likely event that we could later secure the extension as a separate dwelling.
In order to build the extension (that we hope one day will be a separate dwelling) we need to sell our small house and use the equity to build the extension. Am I right to think that I will have to pay capital gains tax on the rental property (profit since 2012). However VAT is exempt if we secure planning permission for a separate dwelling before we built it as a self build project. 

Thanks in advance.. 

Jeremy535897

You will have to pay capital gains tax on your old house, and report the gain and pay tax on it within 30 days of completion. Is it owned jointly or by you alone?

It's not the gain since 2012, but the gain since you bought the house, but the period you lived in it as your main residence, plus the last 9 months of ownership, are exempt on a time apportionment basis. For example, if you owned the property for 20 years and lived in it for 9 years and 3 months before renting it, half the gain would be exempt.

Al1976

Thank you. It is owned by my wife and I. Seems a little unfair as it is our only home.

Al1976

If we moved back into the house for 2 years does capital gains still apply?

Jeremy535897

Al1976 said:

If we moved back into the house for 2 years does capital gains still apply?

Unfortunately yes, and would only take 15 months out of charge, as the last 9 months of ownership is exempted.