will I have to pay cgt

savinglikemad

HI am in process of selling PPR initially with a view to buy house off our son as he needs to move as can't afford his house due to change of job. But it all seems to have gone bit pear shaped, we are also in process of selling a property we rent out, (DUe to very small rental income v morgage costs) but large equity release due to reduction in CGT %, We put the rental house up for sale three weeks ago, but now find son is having problems getting morgage, therefore we think we will have to move into rented place may be a month, possble three month, not what we wanted but not going to lose buyer of PPR. as trying to retire, and need this sale to start getting all monies in order. If we move into rented house at what point would this be classed as our PPR and fall into the three year ppr rule. we really did not want to move into this house as not suitable for our longer term requiremnets but alternative is moving in with son til he gets his morgage sorted out.

CLAPTON

you have two prtoperties

a. your PPR

and
b. a place you rent out

when you sell your PPR there is no CGT payable

if move into your other property then this will greatly reduce your CGT that would otherwise be payable on the second property because it will become your PPR. This is greatly to your advantage.

What is your concern?

savinglikemad

just worried that we may only be in property for couple of months and this could be seen as trying to de fraud the goverment, as it is not my intention to stay in the property for years, just using it as a stop gap til son can sort his morgage out. But I will be living / sleeping /using in the property, not just be seen to be living in it.

savinglikemad

Also how will this effect my CGT liability brought house Aug 2003 for £45000 capital expenditure £4000 rented from Aug 2003 to Dec 2007 empty Jan Feb 2008 anticipated move in 1.3.08 til at least 1.6.08 but during that time I will still be marketing the property as want to sell it. The date of 1.6.08 may stretch, but that is I think realistically the min. Approx sale value £125000 estate agent sol fees etc approc £2500 so net £122500. Only one CGT allowance (mine)

DeepSporran

savinglikemad wrote: »

just worried that we may only be in property for couple of months and this could be seen as trying to de fraud the goverment, as it is not my intention to stay in the property for years, just using it as a stop gap til son can sort his morgage out. But I will be living / sleeping /using in the property, not just be seen to be living in it.

I would not worry. If this will be the only house you own for this period, and you are living in it, then there will be no disputing the fact that for this period it will be your principal (indeed, your ONLY) private residence. So that instantly means that the last 36 months of the ownership period are discounted for CGT purposes.

Furthermore, having established a period of PPR, you are then allowed to claim letting relief. In your case it should reduce the capital gain to zero - you won't even need to use your £9200 allowance.

See this link for info:

http://www.property-tax-portal.co.uk/taxquestion49.shtml

silvercar

gain is 122.5-45-4=73.5k.

Assuming that the revenue accepts that you've moved in, you will be exempt from PPR for the last 3 yrs of ownership ie 36 months out of 58 months.

So you are liable to pay CGT on 22/ 58 ths of the gain ie 27,880.

You then have letting relief which is the lowest of 40k, the PPR relief and relief for the time it was let. In this case the lowest is 40,000. So there is no CGT to pay!

There is some discussion on whether the letting relief based on the PPR relief can include the last 3 years of ownership rule, if not the letting relief would be restricted to 3 months of the 58 ie 3,800. In which case the amount remaining is 27,880-3,800=24,080.

From this you would take your CGT allowance of 9,600 (is that right for next year?) leaving £14,480 to be taxed at the new 18% rate ie £2,606.

If the 3 months stretched to 6 months, the calculation becomes

25/ 61 ths of 73.5=30,123; letting relief at 6/ 61ths ie 7,230 leaves 22,893. less 9,600 CGT allowance is 13,293 @ 18%=£2,393.

CLAPTON

in broad terms

if you don't live in it and so it doesn't become your PPR then
gain = 122500- 45000 - 4000 = 73,500
less CGT allowance of 9200 = 64,300
tax at 18% = 11,574

or if you live in the house for lets say 6 months as your PPR

gain as before 73,500

but allowed PPR allowance = period of residence plus 36 months

so allowed 42/60........ assuming 60 months total ownership

so gain reduced to 22,050
less letting relief 40 months allowed 40/60 of 73,500 or 40,000 which ever is less

so CGT is zero.

To establish it as your PPR means you really have to live there (as you intend to) , I would suggest you make sure you are on the electoral roll, pay the council tax, transfer your bank a/c address there etc to establish it is your genuine residence.

savinglikemad

Gosh you load are brill, I do intend to live there as alternative means living with son, and that will just be hard work and hassle. I really do not want to live there as don't like area, but can put up with it short term as it means stash the dosh. I just was very worried as did not want to fall foul of the law. Thank you every one.