Capital GainsTax on potential property sale

great_bald_one

Good afternoon. I have a main residence that I have lived in for 26 years. It has been my one and only home during this time. No lodgers, no renting etc. I wish to now purchase my parent’s home to have as my main residence and keep my original home. My original home will then be mostly vacant except for weekends. I will not be renting the house out during this period. I will be letting the HMRC know that my parent’s former home will now be my main residence. I wish to then sell my original home in 3 year’s time. I bought the house for £91,000 and expect it to sell for approx £260,000. I have just retired and my annual pension is £22,000 before tax. I have used online CGT calculators to acquire an idea as to how much CGT I would pay (I changed the “What dates did you live in the property ?” to simulate the 3 year vacancy so put 01/09/2000 to 01/09/2023). A figure of £2,989 was returned. My query here is I am correct in saying that for this scenario I would only have to pay a certain amount of CGT (i.e £2989) rather than a potential full amount of £28,620? Someone in the finance industry told me that I would have to pay the full amount so I am a bit confused.

Thanks

Keep_pedalling

There will be little to no CGT to pay, but this will cost you in an additional 5-8% (depending on which part of the UK you live in) tax on the purchase of your parents house, so why hold on to your current home for 3 years rather than sell now?

Where are your parents going to live after you buy their home?

great_bald_one

Thanks for your response. I'm from Northern Ireland. Both parents are now deceased (they both had good innings) so the opportunity has arisen for myself to purchase to be near family etc. I will be getting a good discount on the sale as I have a one fifth share with my siblings so I will hope to have a discount of anything from £50-£60k not including CGT or other. Stamp duty will be around £13k which I hope to get a majority off back if I sell my other home within 3 years( I assume this is the 5-8% that you were referring to earlier. If not then this is another hidden cost I was unaware of).

Reasons for keeping my original home are varied but I may sell within 9 months after I purchase my parent's home. I'm just looking to keep my options open at the moment without any nasty surprises. You have answered my main question anyway so appreciate that.

Keep_pedalling

Yes I was referring to the additional SDLT that you are already aware of. I believe this is 5% in NI.

The other costs you are going to face is council tax on an empty property and what will be quite high insurance for an unoccupied property.

MiloWexley

I’d be careful relying on the calculator alone, as the CGT treatment depends on the exact dates and which property qualifies as your main residence. The final 9 months may also qualify for Private Residence Relief. Definitely worth getting the figures checked before making the move.

UKTaxHelper

Relief works on time, not all or nothing. You owned it 29 years and lived in it 26, and the final 9 months are always covered whatever the house is doing. That leaves roughly two of the three vacant years exposed, under 8% of the gain. Nowhere near the full amount someone told you.

great_bald_one

Thanks to all above for your feedback to date. The council tax is likely to be the rates that I pay annually so that's already been accounted for. The higher insurance for an empty(ish) property I'll need to consider so thanks for the heads up.

Main residence is indeed important which was worrying me a bit. I can't really claim my first home to be my main residence if my parent's house is going to have an extremely higher gas an electric bill than my first home. I have read that HMRC can check these things when it comes to the bit. I just want to keep things right so happy to pay a smaller CGT for this if I claim my original home is no longer my main residence.

Happy that the guy who told me I had to pay full CGT for the sale of my first home was wrong. To be fair he may have just said I had to pay CGT but not stating the amount. Anyway it highlighted a point with a response I was content with.

I have just retired early with a pension and lump sum so financially all this is comfortably feasible. Bit of an eye opener with all the potential taxes involved if you are not careful !!!

Better not reveal any more info about myself in case someone from HMRC is reading this and keeping an eye on me :-)

Keep_pedalling

if houses are left unoccupied for over a year you could find your CT doubles.

great_bald_one

Just googled this for Northern Ireland and it seems potential double domestic rates (council tax) does not apply here. Bit of sweat on there for a minute but good to understand these things nonetheless.

From the NIDirect website …

"

Property rates are the same for empty or lived in domestic properties. An exclusion to rates can be granted in some circumstances. An automatic exclusion will be awarded if an empty property’s capital value is less than £20,000.

"

butterflymum

Am I understanding correctly, and you and 4 siblings own the house together, in equal shares? On what basis, Joint Owners or Tenants in Common? Are the other 4 intending selling their respective shares to you? If yes, and by 'substantial discount', you mean they are intending to do so at below market price, have they considered any potential impact on them from HMRC's "connected person" regulations https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14560 ?

great_bald_one

The house was transferred by my parents to their five children in equal shares by deed in 2012 reserving rights of residents. I believe this is also referred to as a "Life Interest". It became "available" when my mother passed away last month (my father predeceasing her). When the house is sold I expect to initially pay the full valued price. If it's valued at £250,000 then each person involved will acquire £50,000 hence I get £50k back so essentially I only paid £200k for it. All of this will be handled by our solicitor. He talks about four sellers as opposed to five, and the potential of Capital Gains Tax. At the moment we are trying to determine what the base value of the house was in 2012 compared to what it is now to calculate the uplift in value which is taxable. Alternatively we are also trying to establish if the base value might be the value at the date of my mother's death in which case there would be no CGT. Thankfully the solicitor is handling all this as it is way above my head. I'll check further into the "connected person" regulations just to be sure I am not missing anything. Thanks for your input.