CGT implications on Principal Private Residence when moving to second property to refurbish PPR

by Readers Question

10:57 AM, 25th May 2015
About 4 years ago

CGT implications on Principal Private Residence when moving to second property to refurbish PPR

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CGT implications on Principal Private Residence when moving to second property to refurbish PPR

CGT implications on Principal Private Residence when moving to second property to refurbish PPR

My partner and I are undertaking an extensive refurbishment on our primary home which we have lived in since buying it a couple of years ago. In the meantime we have just bought a small flat which we intend to live in while the refurbishment takes place, and rent it out after moving back to our house.

As far as I understand there is no CGT payable if you have lived in your home since buying it. We have no intention of selling the house but I wanted to understand what the implications are for the eventual sale of either property. My concerns are as follows:

  • if we move out of the house while the work takes place (about a year), will this vacant period open us up to paying CGT if we eventually sell? If so, will the tax payable be calculated according to the time spent outside the property as a percentage of the total ownership period?
  • if we live in the flat for 6-12 months with no intention of making it our permanent residence, can we still claim PPR relief if we come to sell it or does this entirely negate the status we’re trying to achieve with the house?

Just trying to determine what the most prudent and efficient way forward is!

Many thanks in advance,

Charlotte



Comments

Mark Alexander

11:07 AM, 25th May 2015
About 4 years ago

Hi Charlotte

It's good news all round for you.

The flat will be your Principal Private Residence for the next 12 months or so because you will have vacated your previous home. This will immediately entitle you to PPR relief on the flat until you move out. Also, PPR relief is for a minimum of 18 months. If you subsequently let the flat you will also be entitled to effectively double that relief by each claiming Letting Relief (up to £40k each) when you eventually sell the property.

With regards to the home you are moving out of, and subsequently back into, this has been your Principal Private Residence so you are also entitled to claim 18 months of PPR relief on that property which should be enough to see you through the development.

Bottom line is this, is you were to theoretically sell both properties 18 months down the line you would have no CGT payable regardless of how much they have increased in value.

If you sell later down the line, the property you consider to be your home will never become subject to CGT (unless you subsequently let it of course) and you will also be able to claim both PPR relief and Lettings Relief against your flat, pro-rata to the time owned and time let, in accordance with calculations explained in the following linked article >>> http://www.property118.com/capital-gains-tax-relief-on-a-property-you-have-lived-in/

Please note that I am not insured to offer tax advice and on that basis, the above should not be construed as advice and I accept no responsibility for any action you take. Therefore, I strongly recommend you consult a qualified and fully insured tax advisor about your plans.
.

Dee Mc

17:10 PM, 26th May 2015
About 4 years ago

Thanks Mark. I didn't realise the maximum £40k was for each owner. Our tax bill has just shrunk.

Mark Alexander

8:36 AM, 27th May 2015
About 4 years ago

Reply to the comment left by "Anonymous " at "26/05/2015 - 17:10":

I am pleased to hear it 😀

Please note that we are funded by donations, see >>> http://www.property118.com/donations/43590/
.

Puzzler

10:19 AM, 30th May 2015
About 4 years ago

Hi Charlotte,

A couple of caveats on Mark's reply. The 40K max is not a threshold over which you pay tax - there is a formula which is quite complicated so do not assume you would get that. Note also that this has changed several times and may well change again.

Also you must inform HMRC every time you elect your PPR and it must be done within 2 years of a sale or purchase.


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