Re: U.K. Capital Gains Tax and Exemption by Re-Investment?

On Nov 28, 12:31 am, Jay Be <johnny_ba...@xxxxxxxxx> wrote:
On Nov 27, 10:58 pm, Tim Woodall <devn...@xxxxxxxxxxxxx> wrote:



On Tue, 27 Nov 2007 20:42:55 GMT,
Alan Ferris <hairy.fer...@xxxxxxxxxxx> wrote:> On Mon, 26 Nov 2007 09:49:11 +0000 (UTC), Tim Woodall
<devn...@xxxxxxxxxxxxx> wrote:

If you've ever lived in the property as your main home (or are prepared
to move in temporarily

Don't even think this. Temporary residence does not count and could
possibly end up with you paying extra interest and penalties when they
enquire into such an obvious attempt to bypass the rules.

If it's your only home (and as I understand it the OP is currently
living with his parent, presumably in their home or a rented house) then
there is nothing dodgy about this at all provided you actually have it
as your home, i.e. don't have tenants, change the bills to your name,
furnish the house, pay council tax, and stay there occasionally.

For the OP to stay there one night per week for the next four months or
so could easily reduce his CGT bill from 16k to nothing. There is
absolutely nothing dodgy about staying in your only or main home for one
or two nights per week but living in rented accomodation during the
week. Most of the people I've known who have done this have done it to
avoid a very long commute but, other than the unnecessary expense,
there's no reason why you couldn't rent the house next door to sleep in
most of the time and only use and visit your main home at the weekend.

If you own more than one house that you use as your home you can
nominate which is your principle private residence. HMRC doesn't require
that you nominate the house that you spend most of your time at (but
does require that you make the nomination within two years of buying the
second property).

Tim.

Yes I do live with my elderly mother (and the house is registered in
*her*name*)

The property which I'm proposing to sell is in *my*name but has been
derelict for a couple of years, so there have been no tenants, bills
etc. Although the last bills received to the house would have been in
the name of the guy who I used to let it to, before he claimed
squatter's rights and basically trashed the place.
If I installed a basic bathroom, kitchen and a bit of secondhand
furniture... could I claim that as my only residence and possible
avoid a big CGT bill whenever the property is sold?

It is the only property registered in my name, although I would have
no bills in my name and I'd have to get the utilities turned on
again... if I thought I could do this in a month I'd be a very happy
camper, but the bloke down the pub's figure of 1 year minimum is
completely unworkable.

One year minimum is not correct. There is no minimum. In theory at
least one day is sufficient but you have to be able to convince the
tax office that it really was your only or main home for part of the
time.

The fact that the property has been empty and unlet might change the
calculation somewhat depending on how long it's been empty.

I think you get the following:

36 months of residence plus whatever you've lived in the house outside
of the last three years (so in your case 36 months). N.B. If you've
EVER lived in the house as your main home (e.g. for the first year
after you bought it) then this is all academic as you've already
established the residency requirement you're trying to get here and
you will gain nothing more unless you are prepared to have it as your
main home for more than three years.

N months of residential lettings where N is the number of months it
was let (including voids between lettings while it was being marketed?
- I think) but not including any months that overlap with those last
36 months.

Next calculate your CGT allowances for each of these. If you've owned
the house for M months then you'll get:
36/M allowance for primary private residence.
N/M allowance for residential lettings relief (but this is capped at
the lower of the PPR and 40k)

So if you've made 50K gain, owned the house for 114 months, let it for
90 of those months and now have it as your PPR for 6 months, when you
come to sell you will have:

50k*36/120 = 15K PPR
40k*84/120 = 15K (35K but capped at 15K)
9k annual CGT allowance.
Total 39k

So you will pay CGT on 50-39=11k (or about 4.4k@40%, 2k@18%)

If you don't move in then you will pay CGT on 41k (about 16.4k@40%,
7.4k@18%)

(There's no guarantee that the 18% tax band will actually happen)

One other possibility would be to give a chunk of the house to your
mother now to use up this years CGT allowance and then to jointly sell
the house next year so you get a second chunk of 9k. This has a lot of
potential complications with effects on your mothers assets, problems
if she dies etc. You'll definitely need expert advice if you want to
think about going along this route and, assuming the 18% CGT tax band
does come in it will save you a maximum of 1656GBP and you'll probably
need to spend a good chunk of that on the expert advice. It's probably
simpler if your mother can afford to buy a chunk of the property from
you to use up your 9k allowance this year - I suspect that you could
sell 20% of the property to her now and then buy it back in the next
tax year to soak up this years 9k before you then selling the house.

(I am not a tax expert - all of the above might be wrong or even
illegal!)

Tim.
.

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