CGT calculation on 2nd home

malcb60

Unexpectedly, in our mid 70s, we have just seen the perfect house for our later years of life when our current one is too much for us to manage.  We are in the very fortunate position that we can buy it outright without selling our present home.  And, in any case arent ready to sell the home we have lived in for over 40 years.
So the potential plan is to buy the 2nd house, notify HMRC that our present home remains as our main residence and rent out the new property for, say, 3 years until we are ready to move.
My query is about the CGT liability.  My belief is that there will be no liability for our present home (as our main residence) and the CGT liability will arise on the 2nd house and will be based on the difference we pay for it now and the value it has achieved when we finally do move in.
As a complete amateur in these matters - I would be most grateful if someone more compentent than I am could confirm my understanding is right - or correct me, if necessary!
I appreciate that this plan also will bring a Stamp Duty liability too - with a possible reclaim dependant on when we move - but the CGT issue is the key one - especially given the rise in value of a property over a period of 40 years.
I should stress that we are not trying to avoid paying tax in any way but do need to go into this potential purchase with a clear understanding of the CGT tax regime and the financial implications for us.

Keep_pedalling

You will pay no CGT on the sale of your current home.

You should not jump into this without having done some thorough research on the obligations and potential pitfalls of becoming landlords. 

[Deleted User]

There won’t be any CGT on the second home simply because……. You aren’t selling it!

p00hsticks

malcb60 said:

My query is about the CGT liability.  My belief is that there will be no liability for our present home (as our main residence) and the CGT liability will arise on the 2nd house and will be based on the difference we pay for it now and the value it has achieved when we finally do move in.
As a complete amateur in these matters - I would be most grateful if someone more compentent than I am could confirm my understanding is right - or correct me, if necessary!

You are correct in the first statement - no liability on your current residence as it will stay as your main residence until you sell it.

 CGT on the new residence would only become a consideration if and when you later sold it - assuming the rules stay the same, it would be based on a proportion of the difference between the buying and selling price, the proportion being determined by how long you had it as your main residence compared with how long it was rented out. You would be able to offset any buying and selling expenses and whatever CGT allowance is around at the time.

Kirkmain

Have you factored in the extra stamp duty costs? Could you buy in under a child or grandchilds name and they rent it out

Keep_pedalling

Kirkmain said:

Have you factored in the extra stamp duty costs? Could you buy in under a child or grandchilds name and they rent it out

That would be an exceedingly dumb thing to do. 

GrumpyDil

Keep_pedalling said:

Kirkmain said:

Have you factored in the extra stamp duty costs? Could you buy in under a child or grandchilds name and they rent it out

That would be an exceedingly dumb thing to do. 

Blunt but spot on. 

Kirkmain

Keep_pedalling said:

Kirkmain said:

Have you factored in the extra stamp duty costs? Could you buy in under a child or grandchilds name and they rent it out

That would be an exceedingly dumb thing to do. 

So share why. If they don't already own a home you save on stamp duty. After 7 years, it leaves your estate. So no 40% inheritance tax, your family get to keep more of your hard earned money which you work for your bloodline.

[Deleted User]

Kirkmain said:

Keep_pedalling said:

Kirkmain said:

Have you factored in the extra stamp duty costs? Could you buy in under a child or grandchilds name and they rent it out

That would be an exceedingly dumb thing to do. 

So share why. If they don't already own a home you save on stamp duty. After 7 years, it leaves your estate. So no 40% inheritance tax, your family get to keep more of your hard earned money which you work for your bloodline.

The family have a property subject to CGT when sold. The family lose their first time buyer status etc etc

Keep_pedalling

   Ferro said:

Kirkmain said:

Keep_pedalling said:

Kirkmain said:

Have you factored in the extra stamp duty costs? Could you buy in under a child or grandchilds name and they rent it out

That would be an exceedingly dumb thing to do. 

So share why. If they don't already own a home you save on stamp duty. After 7 years, it leaves your estate. So no 40% inheritance tax, your family get to keep more of your hard earned money which you work for your bloodline.

The family have a property subject to CGT when sold. The family lose their first time buyer status etc etc

Then there is the danger the legal owner gets divorced, goes bankrupt, dies or simply decides that they want the house for their own use.

mybestattempt

I agree that all the implications of having beneficial ownership of a property where the legal owner is a close family member is a bad idea, especially when the beneficial owners, already in their mid 70s, intend to move into the property in a few years time.