Tax implications

[Anthony]

Hi all

I have one property, my former PPR, which is now let out. It generates profit after allowable deductions of about £2500 per annum, which will be taxable.

I have purchased a BTL this year. It is currently untenanted. I understand that I can offset the losses from this onto my other properties' profits.

The complication now is that I may make the BTL my PPR in the new year, especially if finding a good tenant proves too troublesome.

I am concerned that if I make it my PPR then the taxman may not accept the losses I have made prior to making it my PPR against my other property. I genuinely purchased the second property with the aim of letting it out, but circumstances change. Am I likely to encounter problems here?

My other question is what will be the CGT implications of transferring a BTL to PPR? I purchased the property at a good price so I think that there may be significant capital gains in the period between purchase and the subsequent PPR occupation next year (perhaps of the order of £25000). What will be my liability in this situation when I eventually sell on in years to come?

Thanks for your advice, Anthony

[plym77]

Hi Anthony

Lets assume that your 'former PPR' is property A and your new BTL is Property B.

Whilst A and B form part of your letting business (and they are not Furnished Holiday Lets) then the loss of one can be offset against the other. If after utilisation in the current year, you have losses carried forward they can be used against future profits, HOWEVER, once a property is taken out of a letting busines (ie. to become a PPR, or sold) then you lose any losses carried forward on that property.

There should be no issue in the property losses of B being utilised against profits of A whilst it is part of the letting business, irrespective of whether you may or may not use B as your PPR in the future, so long as the 'expenses relate to the property business'.

As far as transferring a property to BTL, for CGT purposes, as soon as the property becomes your PPR (providing you dont have another PPR) the period of time (plus last 36 months of ownership) that you live in it as your PPR will be covered by PPR Relief on a future sale, plus, by virtue of having a letting property that was also your PPR at some point, Lettings Relief will also be avaiable, which, depending on the facts and figures, could be as much as £40k relief (or twice that if say the property is sold by husband and wife). Finally, do not forget that if the property is sold after a period of ownership of at least 3 years, then Taper Relief will also be available, at 5% reduction after three years, rising by 5% per complete year of ownership up to the maximum 40% relief. Additionally your CGT annual exemptions would be available.

I hope this helps. Should you require more specific advice, please do email me on sherena.glanton@horwath.co.uk for a competative quote

Regards

Sherena