Can I move back into my BTL to minimise my CGT liabilty

Please see our article "Capital Gains Tax relief on a property you have lived in" >> https://www.property118.com/capital-gains-tax-relief-on-a-property-you-have-lived-in/

Example of how moving into a BTL property could reduce Capital Gains Tax

If you had owned a property as a buy to let for X years then it could make sense to move into it for a while as my Principal Private Residence “PPR”.

Let’s assume you purchased the property for £100,000 and it’s now worth £200,000, i.e. a £100,000 taxable capital gain if you were to sell the property without ever having lived in it.

Subject to being able to prove it had, at some point, been your Principal Private Residence then you would be entitled to claim PPR relief. This is because PPR relief is available on the sale of a property which has at some time been an only or main residence. 18 months of ownership are exempt in calculating Capital Gains Tax, whether the individual is living there at the time of selling or not.

It is important to note that PPR relief claims are often investigated by HMRC. For this reason it is imperative to be able to prove, beyond any shadow of doubt, that the property was indeed your Principal Private Residence. Examples of how this can be achieved are Council Tax records, bank statements, voters roll, utility bills, doctors and dentists records etc. The more evidence the better of course.

So, let’s assume you had owned the property for 10 years and never lived in it. Upon sale you would have made a gain for tax purposes of £100,000. However, if you could prove that the property is/was your Principal Private Residence, even if it was only for 6 months (there is no stated minimum), you could claim 18 months of PPR relief. On that basis you would only pay Capital Gains Tax on 85% of the gain, i.e 10 years of ownership less 18 months of PPR relief. In other words, your taxable gain would reduce to £85,000, even though the actual gain would have been £100,000.

On top of that you would also be able to claim “Letting Relief” at the same figure or £40,000 whichever is the lower. The good news is that each person can claim letting relief. Therefore, in the example above, if you are married you could also claim a further £15,000 each of letting relief, reducing your taxable gain to just £55,000.

Finally, don’t forget that each owner also has a Capital Gains Tax annual exemption allowance which can also be used to reduce the taxable gain.

This is a VERY good reason to take professional advice!

The cost of the advice could well represent only a fraction of the tax savings 🙂

If you lived there previously

You do not need to move back into a property which you previously lived in and subsequently rented out in order to benefit from the tax breaks above. The fact that you occupied the property as your Principal Private Residence before you rented it out still counts.

Please also see the latest HMRC guidence on PPR relief >> https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2017--2

5. If you let out your home

You may have to pay Capital Gains Tax if you’ve let out your home. How much you pay depends on how long you lived in it.

Having a single lodger doesn’t count as letting out your home.
Work out how much tax you have to pay

You’ll pay tax on your ‘chargeable gain’. This is your gain minus any Private Residence Relief you’re eligible for.

You get full relief for:

the years you lived in the home
the last 18 months you owned the home - even if you weren’t living there at the time

If you only own one home and you’re disabled, in long-term residential care or sold the property before 6 April 2014 you get full relief for the last 36 months before you sold your home.

Example
You make a gain of £120,000 when you sell your home, which you owned for 12 years. You lived in the whole property for 6 years, then you let it out in full for 6 years.

You get Private Residence Relief for the time you lived there (6 years). You also get relief for the last 18 months you owned the property, even though you weren’t living in it.

This means you get Private Residence Relief for 7.5 of the years (62.5% of the time) you owned the property.

You get Private Residence Relief on the same proportion (62.5%) of your gain. This means you won’t pay tax on £75,000 of the gain.

The remaining 37.5% (£45,000) of the gain not covered by Private Residence Relief is your chargeable gain.

If you qualify for Private Residence Relief and have a chargeable gain, you may also qualify for Letting Relief. This means you’ll pay less or no tax.
Claim Letting Relief

You can get the lowest of the following:

the same amount you got in Private Residence Relief
£40,000
the same amount as the chargeable gain you made from letting your home

Letting Relief doesn’t cover any proportion of the chargeable gain you make while your home is empty.

Example
Because you made a chargeable gain of £45,000 while letting your property (and got £75,000 in Private Residence Relief) you can claim £40,000 in Letting Relief. This means you’ll pay Capital Gains Tax on £5,000.

Why not just speak to HMRC? It might sound crazy - but unless you want to fall foul of any rule later (and get punished), they are the best ones to tell you. They wont tell you off for taking measures to avoid tax. Tax avoidance is legally exploiting tax laws. Your scenario is a classic example.
The laws to allow people to avoid people paying tax are there as their concession to being fair now and then, and giving entrepreneurs a fighting chance!
It's no different you asking them for how much tax you will pay as a self-employed person earning x amount of net profit.
I've used them lots for tax queries. I record my calls in case things differ from what I was originally told. I have never had an issue either - so not needed my back up recording.
It must, by definition, be better than paying even the best yet expensive accountant?

Reply to the comment left by Ken Smith at 14/02/2018 - 11:52
They tend to be wary of offering anything that might constitute tax advice. They would say that they have the legislation and the guidance on their website. That should be sufficient. If it is not, get guidance from an accountant.

HB Thats never been my experience. I always structure my question so am not asking for advice but merely running a scenario past them. Never ever had a problem. Very helpful actually.

If there's anyone reading this who is married and owns a property in their own single name, it is possible to transfer part of the ownership to your spouse's name by using a Deed of Assignment; there's no need to change the records at the Land Registry or with your mortgage provider.

However, if you want to claim two sets of CGT Allowance and Lettings Relief to accompany the new shared ownership, I believe it's the case that the transfer into joint ownership must occur whilst you are resident at the property, not before or afterwards.

Can anyone confirm this and/or point to HMRC advice on this matter?

Thanks guys for your help!