Living in a Buy to let property – does CGT apply?

by Readers Question

3 years ago

Living in a Buy to let property – does CGT apply?

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Living in a Buy to let property – does CGT apply?

We recently bought a second property on a BTL mortgage. Although it doesn’t seem logical we have ended up living in the property and have all bills/council tax in our name registered to this address. Living in a Buy to let property - does CGT apply

To cut a long story short, although it’s on a BTL mortgage this property has been our primary residence from the day we bought it.

If we were to sell this property (having not rented out) would we still be liable for capital gains tax on the additional value created?

Thanks

William



Comments

Mark Alexander

3 years ago

Hi William

Based on what you have said CGT will not apply.

However, that is the least of your worries. It is highly likely that you will be in breach of your mortgage conditions and if your lender find out they may well be able to call in your loan with just 30 days notice. You should seriously consider refinancing onto a residential mortgage.
.

Anthony Endsor

3 years ago

Hi William

As Mark quite rightly says, CGT will not apply in this case. The tax office are not looking at the mortgage, only the actual occupation of the property.
As has been said though, if your lender finds out, you could end up in big trouble and quite possibly end up having to repay the mortgage, which I would guess would likely end in repossession of the property.
CGT goes by a percentage of the time the property has been let out, or has been your primary residence, so if you have had the property say, 4 years, and lived in it for 1 year and let it out for 3, you would have to pay 75% of the CGT. As you have lived there from day one it won't apply to you though.
There is currently an allowance for CGT of around £10k, so if the property has increased in value by £20k, CGT would be 30% of the other 10k, so the total amount would be £3k for 100%. if the property has been occupied, the amount reduces accordingly depending on the percentage of the time lived in, so occupancy for 50% of the time since the property was bought would mean paying £1.5k in such a case.
Occupancy has to be backed up though with proof through bills, mail or other evidence the property is or has been occupied.

Simon Gardner

3 years ago

If you mean you have moved out of what was your main home to live in the new property then you need to make an election for capital tax purposes to have this treated as your main residence. You have two years from acquisition to do this.

It is the 'quality' of your residence that would come under scrutiny in the event of an enquiry by HMRC. So you need evidence that there is permanence and continuity in the occupation of the property as your main residence and also what your intentions are in relation to the occupancy.

William

Re your residential status, the mortgage needs to either be switched to a resi mortgage basis 'in house if your current BTL lender also offers resi mortgages (and also on the basis that they will allow you to do so, too) or alternatively a new resi remo needs to take place swiftly. Or, you move out.

If the new residential remortgage arrangement is required you will have to speak with a regulated mortgage adviser (ie a BTL broker who is not FCA regulated / authorised is not allowed to discuss your situation with you).

The wider financial planning issues now arise too. Whereas many BTL'ers (for some strange reason) don't usually take out life cover to repay the BTL debt in the event of death, a residential mortgage should also be covered, so this should also form part of your new plans as well.

As has been said, CGT is the least of your concerns at this time.

Howard
http://www.property118.com/member/?id=314

Bill Williams

3 years ago

I am currently living in one of my BTL properties in Manchester while I seek a new home. Sold home in London and seeking home in Manchester, which is obviously easier to do if in the area. I first obtained my lender's permission to do so on a temporary basis and had no problem with this.


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