artyphax Posted November 21, 2007 Report Share Posted November 21, 2007 Hi all - I rent out a terraced house which I've owned for the past 6 months and intend to sell up in about 18 months from now. A friend has said that as I've not lived at the property as my main residence I'll need to pay 40% tax on the profit between initial purchase price and the eventual selling price. However, if I move in for 6 months after the AST has ended, I won't have to pay tax on the profit made??. Can anyone shed any light on this as it wouldn't be too convenient to have to move in lock stock and barrel but at the same time I wouldn't want to pay any more than I have to as this property is helping towards my retirement ! Link to comment Share on other sites More sharing options...
Mellors500 Posted November 24, 2007 Report Share Posted November 24, 2007 Hi all - I rent out a terraced house which I've owned for the past 6 months and intend to sell up in about 18 months from now. A friend has said that as I've not lived at the property as my main residence I'll need to pay 40% tax on the profit between initial purchase price and the eventual selling price. However, if I move in for 6 months after the AST has ended, I won't have to pay tax on the profit made??. Can anyone shed any light on this as it wouldn't be too convenient to have to move in lock stock and barrel but at the same time I wouldn't want to pay any more than I have to as this property is helping towards my retirement ! Link to comment Share on other sites More sharing options...
Mellors500 Posted November 24, 2007 Report Share Posted November 24, 2007 Firstly I am not a tax expert but I am certain that there is an allowance of approx. £8,200 per year per person (ie £16,400 for husband and wife) before the 40% tax kicks in. Also the new regulations announced by Gordon Brown recently with the £19,000 limit would also be applicable as far as I know. You need to check it out when you come to sell to soften the blow. Anyway why are you selling? hag on to the property and remortgage leving 15% - 20% in therefore taking the equity out to enable you to buy more property therefore no tax is applicable...easy! Link to comment Share on other sites More sharing options...
lauralivesartnouveau Posted November 26, 2007 Report Share Posted November 26, 2007 Hi I am not a tax advisor… However CGT is not liable in certain situation when selling property. If you live in a property as you main residence and then sell each year that you live in the property provides you with a CGT exemption. Then you are allowed an additional three years of ownership CGT exemption which should cover your letting period. After this you can then deduct lettings relief and finally your personal allowances. It is very TAX EFFICIENT to live in the property prior to disposal I however don’t have enough years of life expectancy to do this myself. If you cant move in then wait until after April as the CGT rates drop to 18% from 40%. Oliver Link to comment Share on other sites More sharing options...
plym77 Posted November 29, 2007 Report Share Posted November 29, 2007 Hi Artifax I am a chartered tax adviser and can hopefully clarify a few issues for you. If you never live in the property as your PPR then for a sale before 5/4/08 you will may 40% tax if higher rate (20% basic rate, or a mixture if you cross the HR threshold) on your 'profits' less CGT annual exemption if not already used. Profits will be your proceeds less your purchase cost and any related allowable costs of purchase/sale, less improvements etc. You have not held the property for sufficient time to attract Taper Relief, which is to be abolished in any event from 6 April 2008. A sale of the property from 6/4/08 will fall into the new regime. We are aware that there may be some amendments to the initial proposals, but as at today the proposals are to scrap indexation and taper relief, and instead, irrespective of your marginal rate of tax, a flat 18% will be chargeable on the 'profits' (after annual exemption. The CGT annual exemption is currently £9200 per person per annum. These cannot however be added up over the period of ownership. It is an allowance per annum, which is lost if unutilised. It is available for total chargeable disposals, therefore if for example you sold shares in the same tax year as you sold the property, you would need to take the other disposals in to account. There are ways of artificially crystallising this with some planning, depending on circumstances. As far as Principal Private Residence Relief. This can be available provided an election is made within the 2 year time limit of a property becoming available as a PPR. Available will mean in your case the property no linger being a Buy to Let but perhaps a second home. Quality of residence is the key. The property cannot merely be 'available' but actually used. Quality will be standard of living, so for example, all utilities, furnished adequately etc. Providing this is all fine, and you either use the property as a second home, or move into it perminently for a while it could be possible to make an election. You could then elect for a period of say 1 month, and vary the election back to your usual home. This election will afford the final 3 years of ownership o be covered by the PPR exemption, therefore a sale of the property within 3 years of purchase (plus the period of 'actual PPR - ie. the one month for example) with a qualifying PPR election having been put in force at some point will mean that the property will be exempt from CGT. This is however not the end of the benefit of PPR elections and means that even if you hold the property in excess of 3 years you may still avoid CGT. By virtue of having a property which has been a PPR at some point, but also let out in that ownership, lettings relief can be available which can be worth up to £40k per owner (but not necessarily a straight 40k, it will depend on a few calculations and the lower value will provide the relief figure). If you are married you can further benefit from some planning by involving your spouse in some planning prior to selling the property. A spouse inherits reliefs built up by the original spouse on the transfer of a share of the property, which could benefit you by utilising your spouses CGT annual exemption, but also the additional lettings relief potential. Even if you are not married there are ways to crystalise gains, mitigate and defer tax. It just depends on your circumstances, views and whether the figures may the plannning feasable. I hope this helps to clarify the issues for you. This is merely an outline and not specific advice, but will hopefully help. Regards Sherena Glanton CTA (Plym 77) Link to comment Share on other sites More sharing options...
artyphax Posted December 8, 2007 Author Report Share Posted December 8, 2007 WOW! Thank you to all who took the trouble to reply to my question. I really am grateful and really appreciate your time and the information supplied. Link to comment Share on other sites More sharing options...
plym77 Posted December 17, 2007 Report Share Posted December 17, 2007 I should also have pointed out that there is a time limit of 2 years to make the election on the property becoming available as your PPR, therefore on a property purchase or the property coming out of buy to let hope this helps Sherena Link to comment Share on other sites More sharing options...
simhar Posted December 17, 2007 Report Share Posted December 17, 2007 Do you think the government would ever introduce CGT on primary residencies ? cheers simhar Link to comment Share on other sites More sharing options...
GPEL Posted December 17, 2007 Report Share Posted December 17, 2007 Not a chance. Link to comment Share on other sites More sharing options...
plym77 Posted December 18, 2007 Report Share Posted December 18, 2007 Never say never... I wouldn't like to say, but with the way people plan using PPR you have to wonder whether some form of restriction of this on multiple residences would ever come in. I would hope not.... but this is the government! Link to comment Share on other sites More sharing options...
Recommended Posts
Archived
This topic is now archived and is closed to further replies.