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Capital Gains Tax


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I presently own a flat which I rent out to tennants. I also have a house with my girlfriend where I am on the mortgage and deeds. I would like to sell both and try and move a step up the housing ladder myself.

Is there any way of avoiding the capital gains tax? I am under the impression that if I sign over the house (both deeds & mortgage) to my girlfriend and I sell the flat over 6 months later I may not have to pay Capital Gains Tax (CGT).

Not sure whether the amount of time you have owned a property is relevant, but I have only owned my present house 18 months and have therefore only rented out the flat for 18 months.

Is it true that there is a legal way of avoiding CGT or do I have no way of getting out of paying the CGT in the long run?

Any advice would be much appreciated. Thank you in advance.

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I am not sure where your information regarding 6 months comes from! For reference, I am a Chartered Tax Adviser and specialise in property taxation.

With regard to your home - this is your Principal Private Residence, and as such, will be exempt from CGT.

With regard to your Buy to Let Property, before we get in to this too far - what sort of profit have you made in 18 months? With the market levelling out, it may not be that much.

There is planning available by utilising the CGT annual exemption of a spouse, as well as your own, but you are not married and therefore this is unfortunately not available to you.

If you weren't going to sell until post 5 April 2008 then it would be possible to consider utilising your girlfriends CGT annual exemption, by doing some planning now, and then making the exchange to sell after 5 April 2008, however, if you want to sell pre 5 April I am afraid this is also not available to you!!

If you are able to move in to the property, you could temporarily elect the property for say a week or a month as your Principal Private Residence, if you did this then the last 3 years of ownership would be exempt, meaning if you sold the property withing 3 years of buying it, then no CGT would be payable. However, to elect the property you must prove quality of residence. You would need to furnish it to livable conditions, pay all services (council tax etc) etc etc - if this is not possible, again this avenue would be closed to you. I should point out for the period the BTL property is elected, your main home will lose its PPR relief, however, given that the last three years of a PPR are exempt from CGT anyway, and that you have only owned the property 18 months, this should not present a problem.

Finally, the only other way to defer and possibly mitegate any CGT would be to consider tax-efficient investments, and then sell them over a number of years. However for this you would need to invest the whole of the gain (ie. your proceeds less your cost) and then release the investment periodically. These types of investment can provide a good return, however, they are also more risky!!

As you have owned the property only 18 months, unfortunately you will not be entitled to any taper relief to reduce the gain, therefore only your annual exemption is available.

In short, you can save CGT, but it would depend on your circumstances and time frame for sale as to when you wish to sell the property.

Should you require more specific advice, please do email me and I would be happy to review your circumstances for you for a competative fee. My email address is sherena.glanton@horwath.co.uk

Kind regards


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