Minimise Your CGT Liability on a House — Move In


Simon Misiewicz

24th May 2016

By Simon Misiewicz

Are you looking to sell a property and are you worried about capital gains tax (CGT)?

Was it once your main home and if so, would you move back into the property?

The problem — 28% CGT is a lot of tax

Given the recent budget changes you may be thinking about selling one or more investment properties. The unfortunate thing is that as property prices increase — if that can be considered unfortunate — then so does the CGT payable when you sell and if you’re a higher rate taxpayer you’ll pay 28% on any gains.

Let me first state that each person owning the property will get an annual capital gains exemption of £11,100 for the year 2016-17. If you are married and the property is in one person’s name only, then it is a good idea to use a deed of trust at least a day before the sale so that you can claim two allowances (couples only). If this is applicable to you please read my article on this.

I previously wrote an article about Private Residence Relief (PRR), which demonstrated that tax is only chargeable on the periods that you were not living in the property. I also outlined a number of reliefs as follows:

  • 0% tax on the time you lived in the property
  • 0% on the last 18 months of ownership (deemed to have been living there even if rented out)

You would also get lettings relief as shown below (the lower of):

  • the amount of PRR already calculated, or
  • £40,000, or
  • the amount of any chargeable gain you make because of the letting (calculated as a fraction of the gain – the fraction being the period of letting/divided by the period of ownership).

This will help you to significantly reduce your CGT liability.

Example: You bought your house in December 2002 and sold it in December 2015, owning it for 13 years. You lived in the property as your only or main residence from December 2002 to December 2008 (six years).

It was then let as residential accommodation from January 2009 to December 2011 (three years) and then empty until sold at a gain of £150,000. You are entitled to PRR for seven-and-a-half years (six years of residence plus the final 18 months) out of 13 years. This part of the gain is £86,538 (7.5/13 x £150,000). Your remaining gain is £63,462. The lowest of the three limits set out above is the gain by reason of the letting £34,615 (3/13 x £150,000) so you are entitled to further letting relief of £34,615. Your chargeable gain will be £28,847.

Move back into the property to get additional reliefs

You can also reduce your CGT liability if you move back into a property which you previously had as your main home.  If you have another dwelling house eligible for relief, for example, a house or flat which you bought or rented as your home while absent, you will need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period of residence at that house.

The qualifying periods of absence are:

  • a. absences for whatever reason, totalling not more than three years in all
  • b. absences during which you are in employment and all your duties are carried on outside the UK. The distance from your place of work prevents you living at home, or your employer requires you to work away from home in order to do your job effectively
  • c. absences totalling not more than four years when the distance from your place of work prevents you living at home or your employer requires you to work away from home.

You will keep the exemption for absences b. and c. if you cannot return to your house afterwards because your existing job requires you to work away again. The absences at b. and c. will also apply if the employment was that of your spouse or civil partner.

Example: You bought a house in 1984 and used it as your only or main residence. In 1985 your employer required you to work abroad and you did not come back to the house until 1990. You lived in the house again as your only or main residence until you sold it in 2013. You are entitled to full relief.

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