Can some please advise on minimising CGT on property sale?

Hi Lou,

This is a section from an Article on PPR from our Tax Planning tab above >> 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 I 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 I purchased the property for £100,000 and it’s now worth £200,000, i.e. a £100,000 taxable capital gain if I were to sell the property without ever having lived in it.

Subject to being able to prove it had, at some point, been the Principal Private Residence of my family then we 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.

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So, let’s assume my wife and I had owned the property for 10 years and never lived in it. Upon sale we would have made a gain for tax purposes of £100,000. However, if my wife and I could prove that the property is/was our Principal Private Residence, even if it was only for 6 months (there is no stated minimum), we could claim 18 months of PPR relief. On that basis we 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, our taxable gain would reduce to £85,000, even though the actual gain would have been £100,000.

On top of that we 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 my wife and I could also claim a further £15,000 each of letting relief, reducing our 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. For the 2014/2015 tax year that figure is £11,000 per person. Therefore, using my example above, a £100,000 taxable capital gain could be reduced to £33,000.

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.

There is also the .Gov guide >> https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323679/hs283.pdf

Does the relief still apply if you move out of a more valuable property and leave it empty, while you live for some months in the cheaper property you expect to subsequently sell?

Reply to the comment left by "Neil Patterson" at "08/07/2016 - 10:03":

Thanks Neil. The Gov guidance here is out-of-date. It says you can claim 36 moths PPR relief, but it's now only 18 months (a huge impact!).

Reply to the comment left by "Neil Patterson" at "08/07/2016 - 10:02":

Thanks Neil. The PPR and LR are as I thought. Am I right in believing I can also claim for any expenses involved in buying and selling the property, and also major refurbishments e.g. new kitchen, bathroom, flooring (but not decorating)?

I believe you can claim PPR for the time you lived in the property plus the last 18 months so in your case it would be 3.5 years out of 11. Possibly a bit more if you did not move a tenant in immediately.

If you have receipts/proof of cost of "improvements" rather than maintenance you should be able to claim these plus costs of buying and selling.

It would be worth talking to a specialist tax advisor or accountant to be certain of all the details if significant sums are involved and if you don't have an accountant it is worth getting one to do your tax return for the year you incurred the capital gain.

Reply to the comment left by "juliet bonnet" at "08/07/2016 - 13:41":

As I understand it technically so long as you notify the tax office that the new address is your primary residence you will get the 18 month PPR on that property and of course you will have your capital gains and other allowences. It will mean your more expensive propety doesn't qualify for relief for the time you live at the second one but if its a long term residence its unlikely that wlll make enough difference to pay tax, although you might be better to let it out rather than leaving vacant.
I know several people this has worked for with no problem in the last 5-10 years for but in the current climate of cracking down on landlords has anyone had the tax office query such an arrangement?

Reply to the comment left by "Darlington Landlord" at "10/07/2016 - 21:16":

Many thanks. I have the receipts for the refurbs.