Jump to content
House Price Crash Forum
Sign in to follow this  
scoobydo

Capitol Gains Tax

Recommended Posts

A work mate of mine has found himself in a bit of deep doodoo. Around '97 he bought his first home for around 50k. Him and her lived there up to October '05, when they decided to give spain a try. So, as everyone will tell you when moving away, "Try and keep a place here incase it doesn't work out", which they did, rented out the house to a couple who wanted it for two years. Perfik.. Not. Spain didn't work, and they were back within six months living with freinds and family. November '06, and caught up in the froth of the market, together they purchased a second property to live in, whilst still renting out their original home. That didn't last, they were split up by Christmas. He kept the second house. Now he is finding it very tough going keeping his head above water and wants to sell the first one and release the equity, around 40K. Then I mentioned capitol gains tax, not a good move. After ranting on about they can't do that, its my money,they just cant, etc, he admitted that he has 25K debt too. So after some back of a fag packet calcs, he will be left with nothing but the mortgage on the second property, his home.

So, the mission is to dodge the tax man. My theory was to sell the second one,( zero equity), his now home, move back into the rented one for a year, then see how the land lies assuming that the year there will qualify as his primary res. Maybe mew a bit to reduce his loans and CC debt just to make life a little easier.

Not the worst case out there I know, but the look of disbelief when he realised actually he didn't have 'thousands locked up in property' was scary. Not on his own me thinks.

Anyone any other ideas.? I think dates may play a part here so key ones are listed below.

Much appreciated if anyone with some tax knowledge could shed a little light.

Purchased first home. 1997

Rented out first home Oct 2005 ( out of the country for 6 months)

Returned and purchased second property to live in Nov 2006

First home still rented out

Share this post


Link to post
Share on other sites
A work mate of mine has found himself in a bit of deep doodoo. Around '97 he bought his first home for around 50k. Him and her lived there up to October '05, when they decided to give spain a try. So, as everyone will tell you when moving away, "Try and keep a place here incase it doesn't work out", which they did, rented out the house to a couple who wanted it for two years. Perfik.. Not. Spain didn't work, and they were back within six months living with freinds and family. November '06, and caught up in the froth of the market, together they purchased a second property to live in, whilst still renting out their original home. That didn't last, they were split up by Christmas. He kept the second house. Now he is finding it very tough going keeping his head above water and wants to sell the first one and release the equity, around 40K. Then I mentioned capitol gains tax, not a good move. After ranting on about they can't do that, its my money,they just cant, etc, he admitted that he has 25K debt too. So after some back of a fag packet calcs, he will be left with nothing but the mortgage on the second property, his home.

So, the mission is to dodge the tax man. My theory was to sell the second one,( zero equity), his now home, move back into the rented one for a year, then see how the land lies assuming that the year there will qualify as his primary res. Maybe mew a bit to reduce his loans and CC debt just to make life a little easier.

Not the worst case out there I know, but the look of disbelief when he realised actually he didn't have 'thousands locked up in property' was scary. Not on his own me thinks.

Anyone any other ideas.? I think dates may play a part here so key ones are listed below.

Much appreciated if anyone with some tax knowledge could shed a little light.

Purchased first home. 1997

Rented out first home Oct 2005 ( out of the country for 6 months)

Returned and purchased second property to live in Nov 2006

First home still rented out

He should have no tax to pay on the sale of his first home as it was his main residence and he is selling within 3 years of moving out. If he phones the local tax office, they will have an advisor who can confirm his position.

Share this post


Link to post
Share on other sites
He should have no tax to pay on the sale of his first home as it was his main residence and he is selling within 3 years of moving out. If he phones the local tax office, they will have an advisor who can confirm his position.

cheers. i have passed that on.

Share this post


Link to post
Share on other sites
cheers. i have passed that on.

You can elect any property you own as your principal place of residence and the sale is then free of CGT. The condition is that you must live in it for 6 months and you cant elect more than once a year. However if you have 2 homes, sell one, you default to the second being the PPOB - so no tax to pay. (assuming you move into it when you sell the first property)

I am a tax consultant - as a rule never ever ring HMRC for advice. You will typically get a low grade clerical tell you to pay the maximum amount possible. There are plenty of published notices on this issue on the HMRC website. Overall your pal will pay no CGT.

Edited by HPC Convert

Share this post


Link to post
Share on other sites
You can elect any property you own as your principal place of residence and the sale is then free of CGT. The condition is that you must live in it for 6 months and you cant elect more than once a year. However if you have 2 homes, sell one, you default to the second being the PPOB - so no tax to pay. (assuming you move into it when you sell the first property)

I am a tax consultant - as a rule never ever ring HMRC for advice. You will typically get a low grade clerical tell you to pay the maximum amount possible. There are plenty of published notices on this issue on the HMRC website. Overall your pal will pay no CGT.

I don't have your expertise on this matter, but my understanding was that you could rent out a former principal residence for up to 3 years without paying any CGT, if you sold within this period. Is this not correct?

Share this post


Link to post
Share on other sites
You can elect any property you own as your principal place of residence and the sale is then free of CGT. The condition is that you must live in it for 6 months and you cant elect more than once a year. However if you have 2 homes, sell one, you default to the second being the PPOB - so no tax to pay. (assuming you move into it when you sell the first property)

I am a tax consultant - as a rule never ever ring HMRC for advice. You will typically get a low grade clerical tell you to pay the maximum amount possible. There are plenty of published notices on this issue on the HMRC website. Overall your pal will pay no CGT.

I must second this. It will pay for him to get an accountant, doesn't need to be an expensive one but should be a tax specialist. HMRC are sporadic, sometimes good but often not.

Share this post


Link to post
Share on other sites

He will be exempt from cgt if he sells within 3 years of it ceasing to be his principal residence. Even after that cgt will be minimal compared to a LL that has only BTL and never resided in it.

Ask the question on www.taxationweb.co.uk/forum. THey could advise how long he could continue to rent his former PPR without being liable to cgt. If you don't want to join the forum, I can ask the question for you. If you do, PM me.

Share this post


Link to post
Share on other sites
He will be exempt from cgt if he sells within 3 years of it ceasing to be his principal residence. Even after that cgt will be minimal compared to a LL that has only BTL and never resided in it.

Agreed regarding 3 years and cgt will be minimal as effectively you work out the proportion of time not exempt e.g if you live there for 5 years and sell after 10 years then 2 years not exempt (5 + 3 exempt) and you would pay cgt on 20% of gain. As above further options of electing primary residence. There is a specific calculation to use and position may have changed in past few years, but the above was the essence of it when I was looking to sell 2 places I had lived in.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 355 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.