CGT & Private Residence Relief confusion

bennyuk

Hi,
My father is moving from old home (lived in for 43 years) to retirement flat.

He wants to keep the old home for a year to allow old possessions to be be sorted, house to be renovated/fixed, and ideally sell it in after a year of moving out. 

I understand we have 9 months grace period on selling main home to avoid CGT (Private Residence Relief). However, it looks as though we are going to need more that 9 months to get everything sorted, and house sold.

So, if it takes more than 9 months, eg 18 months, are we subject to CGT on the whole 44 years, or just the additional extra months over the 9 months PRR grace period?

From my understanding it looks as though if the property was lived in for 43 years, and then not lived in for 2 years (say) then the taxable gain would be JUST FOR THE YEARS NOT LIVED IN, as opposed to the whole 44 year period?

* Gain = 300k - 11k = 289k

* Owned for 44 years (1979->2023)

* Private Residence Relief for 43 years (the time you lived there 1979->2021 plus last 9 months)

* Taxable gain = (44 - 43) / 44 ie 2.27% of 289k = £6,568

If this is true, then the £6k is outside of CGT allowance of £12,300, and so not subject to 18% CGT.

Is this correct?

Many thanks to anyone who can clarify this

Ben

Jeremy535897

You are correct in principle, although you have rounded 9 months to one year in your figures, and are assuming that there will be no other gains to use the annual exemption.

You can also deduct the cost of acquiring the property (legal fees etc), selling the property (legal and estate agent fees), and any expenditure on enhancements reflected in the value of the property at the date of sale. These are deducted from the gross gain of £289,000.

bennyuk

Thats great, many thanks for clarification (I was mainly wanting to confirm that the 44 years lived in will not be subject to CGT). Yes I made some rough assumptions and will need to detail periods, other gains, and other costs when finally sorted.
Many thanks

jimmo

Strictly speaking your calculations are wrong but I doubt it will affect the overall result

Capital gains were rebased to 31 March 1982. Over the following few years there were various options available such as  the "kink test" but all these were done away with in 2008.

 CG16700 - Capital Gains Manual - HMRC internal manual - GOV.UK (www.gov.uk)

 

You therefore need a valuation of the property as at 31 March 1982. Whether it is worthwhile paying for a professional valuation or just guessing a figure is up to you but for now I suggest you use the 1979 purchase price as if it were the 1982 valuation. That, at least, would give you some figures to work on.

 Similarly, for the purposes of calculation of PRR, the periods of both ownership and occupation are deemed to have started of 31 March 1982.

 CG64940 - Capital Gains Manual - HMRC internal manual - GOV.UK (www.gov.uk)

 So, roughly speaking, you will have:

Period of ownership 41 years

PRR for 40 years plus 9 months.