Exit plan – move in before selling up to avoid CGT

by Mark Alexander

10:41 AM, 28th August 2012
About 7 years ago

Exit plan – move in before selling up to avoid CGT

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Exit plan – move in before selling up to avoid CGT

This weekend I received an email from Cissie asking “If I move into a buy to let property which has been let for several years, and sell it after 6 months or a year, can I avoid CGT ? “

It’s a very interesting question, one which is close to my own heart as my parents investigated that strategy before jumping in head first. There isn’t a black and white Yes or No answer to this one, as my accountant often says to me “it depends”

My parents are in their 60’s and built up a small portfolio in the late 1990’s. They have been cashing in on their gains since about 2005 to fund their retirement, continually downsizing by moving into properties which they previously rented. Tax is obviously a consideration for them, they knew gains made on the sale of their own home were not subject to capital gains tax and wondered how this would affect them if they moved into properties they had previously let.

Most of the properties they purchased are nice family homes so the rental yields are not that great. They were only really interested in capital growth and as history has proven, they have been very fortunate in this regard. They have continued to downsize every two years or so. Their strategy has been to move into the properties which provide the lowest income, typically the larger properties so this has siuted the downsizing strategy very nicely.

The key to this the CGT position is being able to prove absolutely that you have moved in and the former buy to let property is now unquestionably your principal private residence (i.e. your first home). Expect to have to produce the following evidence if you are investigated by HMRC:-

  • bank statements at the new address
  • registration with local doctors and dentists at the new address
  • credit cards registered at the new address
  • registered to vote at the new address
  • council tax bills in your name)s) at the new address.

My advice to any landlord or property investor is to employ the services of a professional accountant, my parents use the same one as me. A good accountant will save you far more than they charge, not just in tax but in helping you not to make daft mistakes. Regardless of how many times HMRC tell us that “tax doesn’t have to be taxing” – IT IS! I’d go as far as to say it’s an absolute minefield when it comes to property investment and trading and unless tax is your full time occupation. The chances of most landlords actually being able to complete a tax return properly, claim all expenses and capital items and actually plan to pay the minimal amount of tax is VERY slim without professional assistance.

If you would like to ask a question or share your opinions please use the comments section below or email me – mark@property118.com

We now have a complete section dedicated to articles, Q&A’s and discussions regarding exit strategies. For details please 

Exit Strategies for BuyToLet Landlords




Comments

Mark Alexander

9:07 AM, 25th July 2013
About 6 years ago

Hi Nadette, if only hey?!

Sorry, please don't shoot the messenger, I don't make up the rules.

Annual CGT exemptions are "use or lose" I'm afraid.

You can't roll up and carry forward unused exemptions 🙁

However, you can roll up and carry forward capital losses so if you have any of those you could offset them against any gains. Have you ever lost money on a property deal, sale of shares or anything like that?

As I've always said, where money and tax is involved is pays to seek advice from a suitably qualified and insured professional accountant.

Mark Powell

8:28 AM, 26th July 2013
About 6 years ago

Hi Mark, I'm married and jointly own a house that we have let out for the last two years and the property is HMO licensed now, we have owned the house for three years. The first year we spent time doing the property up, although we didn't live there we paid council tax and stayed at our other house which is in my name only. Would we gain any relief if selling the property? We have just purchased another house which we are going to live in with joint names. During the period, my wife has not had any other property in her name.

Mark Alexander

9:34 AM, 26th July 2013
About 6 years ago

Reply to the comment left by "Mark Powell" at "26/07/2013 - 08:28":

If you didn't live in the property then no PPR relief will be available. I know some people would try it on based on what you've said but that would be risky as HMRC are well within their rights to request more proof that this was indeed your principal private residence such as bank statements going to that address, whether you were registered with Doctors and Dentists at that address etc.

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