How long do I need to live in the property to avoid CGT?

by Readers Question

11:13 AM, 9th December 2020
About a month ago

How long do I need to live in the property to avoid CGT?

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How long do I need to live in the property to avoid CGT?

I wanted to ask if I sell my main residence and move into my only buy-to-let property thus making it my main residence which I will live in, changing bank account, credit cards, register to vote at the address etc.

How many years will I need to live in the property before selling to avoid capital gains tax.

I inherited the property from a relative 8 years ago and have rented it out each year. The value at the time I inherited the property was £300K, 8 years ago which was under the inheritance tax threshold at the time.

The property is now worth circa £1 million.

Many thanks

Richard

Editor’s Notes: Please see HMRC >> https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2020

HMRC CGT calculator >> https://www.gov.uk/tax-sell-property/work-out-your-gain

Period of ownership

Your period of ownership begins on the date you first acquired the dwelling house, or on 31 March 1982 if that is later. It ends when you dispose of it. The final 18 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point.

If you’re a disabled person or a resident in a care home, the final 36 months of ownership may qualify for relief if you do not have any other relevant right in relation to a private residence. More detail is available in the Capital Gains Tax Manual, see CG64986.

If the dwelling house has not always been your only or main residence, you’ll need to split the gain. When calculating the proportion of the gain eligible for relief, you multiply the gain by a fraction equal to the periods of occupation (including the final 18 or 36 months where appropriate) divided by the period of ownership (both periods starting at 31 March 1982 if the house was owned before that date). You do not introduce valuations of the property at the dates of changes of use.

4.4 Example 4

You bought your house in January 2006 and sold it in January 2020. You lived in the property as your only or main residence apart from 18 months in 2007 and 2008 when you lived in a different house. So the house qualifies for relief for 150 out of the 168 months you owned it. A proportion of any gain you make from the disposal amounting to 150÷168 will qualify for relief. If you had moved out of the house at some time after July 2018 instead of in 2007 and 2008, your relief would not be restricted as this absence would have been during the final period of 18 months. If you had bought the house before 31 March 1982, the calculation above would begin from 31 March 1982 and not from when you bought the house.

 


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Comments

Neil Patterson

11:15 AM, 9th December 2020
About a month ago

Dear Richard,

Please see my notes above in the article on how PPR relief works.

Infrequent visitor

17:27 PM, 9th December 2020
About a month ago

PPR relief rules changed from April 6th 2020 & the final 18 months relief period was shortened to 9 months.

Example 4 listed above would need to be amended accordingly.

Mark Alexander

19:27 PM, 9th December 2020
About a month ago

In short, you cannot avoid the capital gains by moving in, but you might be able to reduce them.

The longer you live in the property the more your gains will be reduced.

Paul Shears

10:27 AM, 10th December 2020
About a month ago

Reply to the comment left by Mark Alexander at 09/12/2020 - 19:27
Or perhaps flee the loony bin altogether and get a Non Habitual Residents Visa in Portugal as Mark has said previously? 🙂

joss URCH

20:31 PM, 11th December 2020
About a month ago

Reply to Paul Shears .
Without being able to incorporate your Loony exit plan sounds more and more attractive can you tell me when Mark Alexander discussed this option, as I'd love to get out of this tax trap.
Maybe Mark could let me know who could help with this possibility.

Paul Shears

0:59 AM, 12th December 2020
About a month ago

Reply to the comment left by joss URCH at 11/12/2020 - 20:31
https://duckduckgo.com/?q=https%3A%2F%2Fyoutu.be%2FLGQGhofoRC8+&atb=v193-1&iax=videos&ia=videos&iai=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DLGQGhofoRC8
Mark has spoken about this many times but here is the latest link on the subject that I could find.
I hope this helps. 🙂

Paul Shears

1:05 AM, 12th December 2020
About a month ago

Reply to the comment left by joss URCH at 11/12/2020 - 20:31
Perhaps we could have a chat about this?

joss URCH

17:11 PM, 12th December 2020
About a month ago

Reply to the comment left by Paul Shears at 12/12/2020 - 01:05
Hi Paul, Thanks for the info. I have a rough idea but its a big move one can never know too much so yes happy to chat, best for me by phone not sure how to organize this as not comfortable giving my tel no. out on any forum.

joss URCH

18:02 PM, 12th December 2020
About a month ago

Wow that video was spot on, Just what I needed to hear. There is so much bad advice its good to hear it from the horses mouth someone who lives the life, so thanks again Mark and Paul.
Britain could miss out on alot of tax which would be a shame, I once wrote to my MP suggesting they lowered the CGT to give landlords a window to get out and possibly boost there coffers in the shot term ... fat chance. I probably banged another nail in the BTL coffin... chow Im off abroad.

Paul Shears

20:24 PM, 12th December 2020
About a month ago

Reply to the comment left by joss URCH at 12/12/2020 - 17:11
Try paulonline@mail.co.uk.
This is a throwaway Email so no risk.

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