Renting or buying main residence while on second build?

Renting or buying main residence while on second build?

10:03 AM, 6th June 2022, About 2 months ago 11

Text Size

Hi all and thanks for having me on the forum. I am a first-tie developer having sold my London property and with £450k in the bank, I bought some land in Kent and obtained FPP.

I have just finished building the house which has been valued at around £1-1.2 M. I did need to borrow £100k to finish the property, a loan secured on the house.

I am now planning a second build, however my partner doesn’t want to rent whilst the new house is going up and has suggested that we buy a flat outright (for around £300k), to give her a sense of permanency, which we could also use as a security if we run out of money to build.

My question is in regards to CGT are we better off NOT having that theoretical flat and renting for 18 month thus circumventing CGT (legally) or is it an asset?

We believe that we can make another profit of around £400k with the opportunity we have in mind. So renting isn’t a bad option. Any thoughts at all?

Many thanks.

John



Comments

Ian Narbeth View Profile

11:22 AM, 6th June 2022, About 2 months ago

John, I recommend you take professional advice from an accountant. If you are thinking of obtaining the principal private residence exemption from CGT you need to be careful and your accountant can advise on the issues.

On the face of it, neither the nearly-completed property nor the second build will be your residence so I am not sure you can avoid CGT.

james pearce

13:44 PM, 6th June 2022, About 2 months ago

I would agree with Ian although personally I'd go direct to a specialist tax adviser. They are likely to tell you it is all about the "intent" So, if you've literally just finished a build and sold it straight away you may find yourself liable to tax? I may be wrong so take specialist advice.....

Adrian Jones

15:18 PM, 6th June 2022, About 2 months ago

I know John's question is about CGT but wondered what the Stamp Duty liability would be on the flat if the new build hasn't been sold.

john headley

15:27 PM, 6th June 2022, About 2 months ago

Reply to the comment left by Adrian Jones at 06/06/2022 - 15:18
Hi Adrian, in my case we are planning on selling our new build house and won't be able to buy another property without that money. So stamp duty I presume will be at the standard rate . As our current property is our sole property and all of our bank, driving licence, personal insurance ,GP/dentist faculties are directed to this address I'm sure it constitutes our main address and is tax-free as such.

john headley

15:31 PM, 6th June 2022, About 2 months ago

Reply to the comment left by james pearce at 06/06/2022 - 13:44
Hi James, the residency rules set out by HMRC are that the property must be lived in for 12 months, if a self-build. That doesn't mean from the completion date, we have lived in the weathertight shell with a basic kitchen, heating and washing facilities for 8 months although we now have a nearly finished property. We have mail to corroborate this from official parties, so if we were to sell it today and it completes in 4 months' time, technically we have satisfied the 12 month criteria.

Ian Narbeth View Profile

17:06 PM, 6th June 2022, About 2 months ago

Reply to the comment left by john headley at 06/06/2022 - 15:31
John
Your original post did not mention that you had been living in the house under construction, a somewhat important omission!

You may be able to claim PPR relief but I would check with your tax advisor as I think the 12 months is not a hard and fast period and I believe you need to have occupied the whole property so if parts were unusable (or non-existent, such as additional bathrooms) in the early months that may count against you.

john headley

17:36 PM, 6th June 2022, About 2 months ago

Reply to the comment left by Ian Narbeth at 06/06/2022 - 17:06
Thanks Ian. I suppose I did leave some important details out, but I didn't want to bore people too much with the minutiae, which i now now could be important! Regards. John

Ian Narbeth View Profile

17:47 PM, 6th June 2022, About 2 months ago

Reply to the comment left by john headley at 06/06/2022 - 17:36
That's why proper professional advice is recommended as the adviser should ask appropriate questions to get the full picture.

CMS View Profile

6:51 AM, 8th June 2022, About 2 months ago

As the main house point has already been dealt with I won't cover that again.

With regards to buying a flat, if you intend to live in that as your main residence then that shouldn't attract CGT either i wouldnt think

Ian Narbeth View Profile

10:01 AM, 8th June 2022, About 2 months ago

Reply to the comment left by CMS at 08/06/2022 - 06:51With the caveat that we may not have the full picture, if John now buys a flat and lives in it as his main residence and later sells the £1.2M house that will affect the CGT position and it is likely he will have to pay tax on the gain.

1 2

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership

or

Don't have an account? Sign Up

Landlord Tax Planning Book Now