Capital gains tax

[Joe Naughton]

Good morning!  I wondered if anyone could help with the tax situation following my new build?  The situation is this, in 2017 I purchased a house with a large garden, I moved into the house and lived in it as my PPR.  I applied for planning permission for a bungalow in the garden which was granted! I have just finished completion of the bungalow ( it's all signed off my building control etc) and I've moved in!

This is my retirement home and I intend to stay put!  Now I want to sell the existing house but what's the situation re capital gains tax?  I understand it retains exemption for a certain period but for how long? And when does this period start?  I also heard from a friend that the rules change in the new tax year?  Any help much appreciated!  Joe.                                                                                                                                                                                                                                                                                                                            

[Oz07]

Think you're good to go. Just double check the time period. At worst the new bungalow could always sit "empty" while you still live in old house while it sells

[Temp]

Currently 18 months but soon reducing to 9 according to...

 

https://www.which.co.uk/money/tax/capital-gains-tax/capital-gains-tax-on-property-avuq96u1500f#private letting relief

 

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Changes to private residence relief from 2020 From April 2020, private residence relief will apply to the time you lived in the home, plus the final nine months of ownership - instead of the final 18 months. However, people who move into a care home, or have a disability will still be able to claim for the last 36 months of ownership. At the same time, lettings relief will be scaled back so it is only available for people who were in shared occupancy with a tenant. Anyone who has lived in a property and now rents it out is likely to be hit by this change and, as a result, could face a larger capital gains tax bill.  People will still be able to claim private residents relief for any period where the property was their main home. The government has announced plans to consult on these changes.
 

 

 

You may have moved out but do you still use the old house (for storage?) because...

 

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If you use more than one home, you can nominate which will be tax-free. It doesn’t have to be the one where you live most of the time. Generally, it makes sense to nominate the one expected to make the largest gain when you come to sell it. You have two years from when you get a new home to make the nomination.

 

So at least 9 months and up to 2 years. 

 

You only pay it on the gain in value after deducting your annual allowance.

Edited September 26, 2019 by Temp

[Oz07]

Would the capital gain be calculated on what you paid or the rise in value since you moved out?

I would guess in this case if op has split the garden then perhaps there is not such a big gain regardless?

[ProDave]

1 hour ago, Oz07 said:

Would the capital gain be calculated on what you paid or the rise in value since you moved out?

I would guess in this case if op has split the garden then perhaps there is not such a big gain regardless?

CGT simply takes the value when you bought it and the value when you sold it and draws a straight line between the 2 and assumes it has made a steady gain of so much per year and calculates on that.

 

As you personal CGT allowance is over £10K in each year, and that doubles to over £20K if the property is jointly owned, then it is unlikely to be an issue for you unless it sits there empty for some time.  It is a pain that you have to declare it on your tax return so you have to prepare all the calculations, even if it ends up with nothing due.

 

Our previous house has been let for over 2 years now, and even with the new rules of no lettings relief and reduced PRR any capital gain due so far would be less than our personal CGT allowance so nothing would be payable. Yet.

[Joe Naughton]

Thanks for your help! So to sum up I have 18 months to sell the house from the time I moved out? Joe

 

[Bitpipe]

On 26/09/2019 at 08:22, ProDave said:

CGT simply takes the value when you bought it and the value when you sold it and draws a straight line between the 2 and assumes it has made a steady gain of so much per year and calculates on that.

 

As you personal CGT allowance is over £10K in each year, and that doubles to over £20K if the property is jointly owned, then it is unlikely to be an issue for you unless it sits there empty for some time.  It is a pain that you have to declare it on your tax return so you have to prepare all the calculations, even if it ends up with nothing due.

 

Our previous house has been let for over 2 years now, and even with the new rules of no lettings relief and reduced PRR any capital gain due so far would be less than our personal CGT allowance so nothing would be payable. Yet.

 

On 26/09/2019 at 06:31, Oz07 said:

Would the capital gain be calculated on what you paid or the rise in value since you moved out?

I would guess in this case if op has split the garden then perhaps there is not such a big gain regardless?

 

We had a similar situation - rented out the old house when we bough the new as market was flat and then managed to sell it to fund the build.

 

From memory, the CGT is calculated from when it ceases to be your primary residence to when it is sold - so if you have it valued now prior to marketing for sale it's the gain over that period that is relevant.

 

[ProDave]

23 minutes ago, Bitpipe said:

 

 

We had a similar situation - rented out the old house when we bough the new as market was flat and then managed to sell it to fund the build.

 

From memory, the CGT is calculated from when it ceases to be your primary residence to when it is sold - so if you have it valued now prior to marketing for sale it's the gain over that period that is relevant.

 

I am happy to be proved wrong if you can show me where it says that.  Everything I have seen on the subject they just take the purchase price and sale price and assume a linear gain throughout that period.  you are only liable for CGT during the period is is not your PRR, but still based on that assumed linear growth in value.

[Oz07]

2 hours ago, Joe Naughton said:

Thanks for your help! So to sum up I have 18 months to sell the house from the time I moved out? Joe

 

Not necessarily. Has it gone up in value or down? Not forgetting you've pinched half the garden

[ProDave]

2 hours ago, Joe Naughton said:

Thanks for your help! So to sum up I have 18 months to sell the house from the time I moved out? Joe

 

No, you have that, plus the time it takes for any gain to exceed your personal CGT allowance, or two lots of personal CGT allowance if jointly owned.

[Bitpipe]

4 hours ago, ProDave said:

I am happy to be proved wrong if you can show me where it says that.  Everything I have seen on the subject they just take the purchase price and sale price and assume a linear gain throughout that period.  you are only liable for CGT during the period is is not your PRR, but still based on that assumed linear growth in value.

 

I had a google and you're absolutely right, now trying to recall what I ended up putting in the calculation

 

Not sure if it made a material difference though as the property was owned for 11 years and rented for 2 1/2 so under the PRR rule we were only liable for one year of linear capital gain which would have been well within our joint allowance for that year.

[Temp]

Apparently its 36 months rather than 18 if you are disabled.

[Temp]

 

 

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2019

Only or main residence

If you live in, as your home, 2 or more houses, you can only have one main residence at a time for Private Residence Relief.

You can nominate which residence is to be treated as your main residence for any period. Your nomination must be made within 2 years of the date you first have a particular combination of residences. If there’s a change in your combination of residences, a new 2-year period begins. If you do not make a nomination, the question of which is your main residence will be determined on the facts.