Flipping

Lennyboy99

hi, I have two houses A and B and have lived in both of them over the last 5 years and have rented out one while occupying the other. I have accepted an offer on House A and will move into the House B. If I am right, I can declare either A or B as my principal residence and pay capital gains on the other whenever it is sold. However my question is if I sell house A and declare that as my principal residence the CGT would transfer to house B. If I then live in house B for 2 years, would I be exempt from CGT on that one?

Grumpy_chap

Lennyboy99 said:

hi, I have two houses A and B and have lived in both of them over the last 5 years and have rented out one while occupying the other. I have accepted an offer on House A and will move into the House B. If I am right, I can declare either A or B as my principal residence and pay capital gains on the other whenever it is sold. However my question is if I sell house A and declare that as my principal residence the CGT would transfer to house B. If I then live in house B for 2 years, would I be exempt from CGT on that one?

Not as I understand it.
The liability for CGT is a matter of fact based upon length of ownership and length of occupation.

Say you purchased House A in January 2019.  Say £200k
You initially rent that property for 2 years (24 months)
Then you live in House A until end June 2024 (42 months)
Then you sell House A for, say £300k
So, the ownership period is 66 months.  The increase in value is £100k
Relief for the proportion when the property was PPR, so 42/66 = 67% (£67k from the £100k).  CGT is due on the remaining £33k.  There is an annual CGT allowance, so it is only the part above that (sorry I am not up to speed on the current allowance).
There is also another 9 months that can be taken for selling the property but I think that has to be the last 9 months of ownership and that time is already being claimed in this scenario and I assume you cannot claim the same time twice.

House B will be similar.

Hopefully someone else will confirm, especially with regard to the 9 months.

sheramber

Lennyboy99 said:

hi, I have two houses A and B and have lived in both of them over the last 5 years and have rented out one while occupying the other. I have accepted an offer on House A and will move into the House B. If I am right, I can declare either A or B as my principal residence and pay capital gains on the other whenever it is sold. However my question is if I sell house A and declare that as my principal residence the CGT would transfer to house B. If I then live in house B for 2 years, would I be exempt from CGT on that one?

https://www.gov.uk/tax-sell-home/absence-from-home

Have you declared the rental profit for each house when it was rented out?

[Deleted User]

Grumpy_chap said:

Lennyboy99 said:

hi, I have two houses A and B and have lived in both of them over the last 5 years and have rented out one while occupying the other. I have accepted an offer on House A and will move into the House B. If I am right, I can declare either A or B as my principal residence and pay capital gains on the other whenever it is sold. However my question is if I sell house A and declare that as my principal residence the CGT would transfer to house B. If I then live in house B for 2 years, would I be exempt from CGT on that one?

Not as I understand it.
The liability for CGT is a matter of fact based upon length of ownership and length of occupation.

Say you purchased House A in January 2019.  Say £200k
You initially rent that property for 2 years (24 months)
Then you live in House A until end June 2024 (42 months)
Then you sell House A for, say £300k
So, the ownership period is 66 months.  The increase in value is £100k
Relief for the proportion when the property was PPR, so 42/66 = 67% (£67k from the £100k).  CGT is due on the remaining £33k.  There is an annual CGT allowance, so it is only the part above that (sorry I am not up to speed on the current allowance).
There is also another 9 months that can be taken for selling the property but I think that has to be the last 9 months of ownership and that time is already being claimed in this scenario and I assume you cannot claim the same time twice.

House B will be similar.

Hopefully someone else will confirm, especially with regard to the 9 months.

Correct - if you are living in the property in that last nine months it cannot be ‘double counted’. The nine months must relate to a period of absence. 

CGT exemption £3000

ader42

My understanding is that you should ideally declare a residence as your Principle Primary Residence to HMRC at the appropriate factual times that it changes if you own multiple houses. Obviously most people only have one house at a time and so don’t need to inform HMRC. 

You can declare one owned property as your PPR to HMRC whilst actually living elsewhere (like politicians do), but you need to do it beforehand to be fully above board. i.e. do it before you let it out and not after it has been lived in by you, then a tenant, and then you, and then another tenant, and then you and then sold. 

You have a period of 2 years to nominate a property as your PPR from a specific date of fact (e.g. date of tenancy starting). The clock restarts at each subsequent such events (e.g. a date you move back in).

If you want to nominate a home you must do this within 2 years every time your combination of homes changes. So you should have done this within 2 years after you bought the second home. 

Nominating PPR on a property you own but don’t live in can be useful for example whilst you rent elsewhere. You cannot claim PPR on a property whilst it is let, but you can if it is empty/unused - so if you lived in HouseA for 26 months, then it was empty for 3 months and then you let it out for 12 months then sold it you could have 38 months PPR (26+3+9).

As you haven’t nominated either house as your PPR you will find that you have to work out the facts as Grumpy_chap stated AND of course you have to explain your full calculations on the CGT form.

HMRC do have links with the Land Registry to check details/dates etc.

CGT does not transfer from one property to another property.

You cannot usually have PPR at more than one property at a time (claim the same time twice as Grumpy_chap put it) - but in reality you can due to the 9 months period for example.

The 9 month period is the “Final period exemption” - you do not have to actually live in the house during that 9 month period. 

One example of being able to nominate PPR is a builder who owns his own home and intends to never move, he decides he will live in his house until he dies. But as a businessman he buys a second house, nominates it his PPR, does it up and re-sells it within 9 months. No CGT liability. He can do this over and over as I understand it. 

Once the house is sold you have 60 days (from memory) to pay the CGT to avoid fines & interest.

There are other rules… it’s a complex area.

[Deleted User]

ader42 said:

My understanding is that you should ideally declare a residence as your Principle Primary Residence to HMRC at the appropriate factual times that it changes if you own multiple houses. Obviously most people only have one house at a time and so don’t need to inform HMRC. 

You can declare one owned property as your PPR to HMRC whilst actually living elsewhere (like politicians do), but you need to do it beforehand to be fully above board. i.e. do it before you let it out and not after it has been lived in by you, then a tenant, and then you, and then another tenant, and then you and then sold. 

You have a period of 2 years to nominate a property as your PPR from a specific date of fact (e.g. date of tenancy starting). The clock restarts at each subsequent such events (e.g. a date you move back in).

If you attempt to inform HMRC about PPR after the fact to avoid CGT you will likely run into the 2 year limit and clock restarting issue and you will find that you still have to work out the facts as Grumpy_chap stated AND of course you have to explain your full calculations on the CGT form. HMRC do have links with the Land Registry to check details/dates etc.

CGT does not transfer from one property to another property.

You cannot have PPR at more than one property at a time (claim the same time twice as Grumpy_chap put it). But nominating PPR on a property you own but don’t live in can be useful for example whilst you rent elsewhere. You cannot claim PPR on a property whilst it is let, but you can if it is empty/unused.

The 9 month period is the “Final period exemption” - you do not have to actually live in the house during that 9 month period. 

One example of being able to nominate PPR is a builder who owns his own home and intends to never move, he decides he will live in his house until he dies. But as a businessman he buys a second house, nominates it his PPR, does it up and re-sells it within 9 months. No CGT liability. He can do this over and over as I understand it. 

Once the house is sold you have 60 days (from memory) to pay the CGT to avoid fines & interest.

If a ‘businessman’ was doing that he would be in danger of being considered by HMRC to be trading in my opinion. Certainly I would expect a challenge.

Check out Badges of Trade. 

Bookworm105

ader42 said:

You can declare one owned property as your PPR to HMRC whilst actually living elsewhere (like politicians do), but you need to do it beforehand to be fully above board. i.e. do it before you let it out and not after it h

One example of being able to nominate PPR is a builder who owns his own home and intends to never move, he decides he will live in his house until he dies. But as a businessman he buys a second house, nominates it his PPR, does it up and re-sells it within 9 months. No CGT liability. He can do this over and over as I understand it. 

Once the house is sold you have 60 days (from memory) to pay the CGT to avoid fines & interest.

There is an overarching principle that a PPR must be available to you as a residence. Therefore a let property is no longer available and so cannot be claimed as a nominated PPR 


as for your builder scenario that would utterly fail.
There is loads of case law re "flipping" defining whether a property qualifies as PPR. The builder would lose on the basis of  lack of  “permanence, continuity and the expectation of continuity”.
Leaving aside the obvious relationship to his trading activity as a builder as Ferro said.

Lennyboy99

This looks ever so complex 🤔. I have moved in and out of several properties that I owned or rented over the last 10 years. All rents have been declared and IT paid on the revenue.  So what I understand is that there is no way to avoid CGT. I have never declared any particular house as my principal residence although I would likely identify the one I lived in longest as the PPR. I’ll be moving back into that one in about 8 months when the current tenancy ends. Even though I haven’t declared a PPR to HMRC, I am assuming they will still accept one property out of my portfolio as my home and allow me CGT relief on that. I hope so but I am a bit nervous now. Just for interest, I am selling off all the properties and getting out of the rental market hence asking the question. 

Grumpy_chap

Lennyboy99 said:

This looks ever so complex 🤔. I have moved in and out of several properties that I owned or rented over the last 10 years. All rents have been declared and IT paid on the revenue.  So what I understand is that there is no way to avoid CGT. I have never declared any particular house as my principal residence although I would likely identify the one I lived in longest as the PPR. I’ll be moving back into that one in about 8 months when the current tenancy ends. Even though I haven’t declared a PPR to HMRC, I am assuming they will still accept one property out of my portfolio as my home and allow me CGT relief on that. I hope so but I am a bit nervous now. Just for interest, I am selling off all the properties and getting out of the rental market hence asking the question. 

No, you cannot just identify the property you lived in for longest as the PPR.
Which property was the PPR is a matter of fact. 
Given you have moved in and out of several properties that you owned or rented over the 10 years, the fact would seem to be that you have had several PPRs in succession.
In particular, any property that was rented out under AST (or any other form of tenancy) was not available to be your PPR for that time so cannot be claimed as such.
The part about declaring a specific property as PPR seems to be more relevant where there might be a home and a holiday home (so both available to use by the individual) rather than a home where the individual lives and a number of properties rented out (so not available for use by the individual).

The way forward would be to set out a table with for each month of the past 10 years and then note each property ownership period, when you lived in each property and when each property had tenants.
You may need to engage professional advisor to review this and assess your figures are appropriate.  That will be better for peace of mind than taking a chance and risking HMRC investigation.

Bookworm105

Lennyboy99 said:

This looks ever so complex 🤔. I have moved in and out of several properties that I owned or rented over the last 10 years. All rents have been declared and IT paid on the revenue.  So what I understand is that there is no way to avoid CGT. I have never declared any particular house as my principal residence although I would likely identify the one I lived in longest as the PPR. I’ll be moving back into that one in about 8 months when the current tenancy ends. Even though I haven’t declared a PPR to HMRC, I am assuming they will still accept one property out of my portfolio as my home and allow me CGT relief on that. I hope so but I am a bit nervous now. Just for interest, I am selling off all the properties and getting out of the rental market hence asking the question. 

nominating to HMRC must be made within 2 years of you first having a "combination of properties"
that deadline is rigidly applied by HMRC

you have not made any nominations so your situation is you will be judged "on the matter of fact" as you have a timeline during which you moved from property to property

based on what you say, each property you were NOT living in was let ("rented out") so was no longer available to you for use as home. As such it appears you have a straightforward succession of single main residences, one after the other. Your occupation of each can be set out on a linear timeline that gives you the number of months you lived in each as your then main home 

The fact each property was producing rental income is useful because it confirms that your property empire was not done purely to purchase, improve, sell & move on (aka property trading & so subject to income tax) but was in fact property (BTL) investing (& so subject to CGT)

The courts have established that a claim to private residence relief is based on the quality of occupation, not the quantity of occupation. This is summarised as the infamous Goodwin v Curtis case: "some degree of permanence, some degree of continuity or some expectation of continuity" CG64460 - Private residence relief: only or main residence: meaning of residence: Goodwin v Curtis - HMRC internal manual - GOV.UK (www.gov.uk)

If you lived in one house for say 1 month and the next one for say 2 years both may still qualify for PRR based on the facts of your occupation of them. Were they really your home for those periods? The courts have identified some "tests" to help them decide the facts of the occupation : CG64545 - Private residence relief: two or more residences: no valid notice made - HMRC internal manual - GOV.UK (www.gov.uk)

if you are married I suggest you read this case as it is also somewhat infamous: Moore V HMRC because he lived alone in a succession of properties claiming each as his then main home 
Moore v Revenue & Customs [2013] UKFTT 433 (TC) (14 August 2013) (bailii.org)

In summary
no you cannot select only one of your properties as your "main home" for CGT
each property you ever lived in is partially exempt and partially liable
you need to work out the timeline for each of them 
the final 9 months of ownership rule applies to each property in isolation (but cannot overlap across individual properties nor can it be double counted if you were in occupation for any of those 9 months )

Lennyboy99

Seems nice got myself in a muddle with this