Advice from Ilyas
Ilyas
I would be grateful for your advice in relation to potential Capital Gains Tax issues relating to a property I own which is currently rented out.
The property was purchased as my main residence on 6th November 1998 for £52,500. I lived in the property until October 2003. I purchased my existing residence on 5th September 2003 and took out a buy to let mortgage. The property was then let on 19th November 2003 and has been ever since.
The property is worth £170K. The tenant wants to stay and I don’t particularly want to sell at the present time but may want to in the future. I understand that as the property was my main residence I can sell it without having a CGT liability for 3 years after I move out. As mentioned above I don’t particularly want to sell now but want to reduce any liability in the future.
Is there any advantage in me setting up a company and transferring the property into the company? I realize that there would be costs involved in that but it may be cheaper in the long run.
Would it help if I moved back into the property at a later date for a while? Would the CGT be payable from when I first let the property or when I bought it?
I would welcome your advice and any thoughts you have on ways of keeping the liability to a minimum.
Dear John
Option 1.
You have 3 years from the date you moved out as a period of "deemed occupation", which effectively means no capital gains tax to pay. Therefore if you sell by October 2006, you will not pay any capital gains tax.
Option 2.
If you sell anytime after that date and you elect with HMRC via a simple letter that you wish the property you let out as you PPR (Principle Private Residence) then you will pay no capital gains tax when ever you sell the let property. However, you will pay tax when you sell the existing property you occupy. You are only allowed PPR on 1 property.
Option 3.
Keep things as they are. So, if you sell the investment property in say 2009, you are allowed until October 2006 as deemed occupation and then from October 2006 to 2008 will be the period when you will pay capital gains tax after taper relief and your annual capital gains tax allowance. This is best demonstrated by example:
Cost of property £50,000
Sell in 2009 £200,000
Gain £150,000
Exemptions:
PPR, therefore taxable gains would be on 3 years divided by the 20 years of ownership, in figures means taxed on £22,500 of the profit.
On this £22,500 you deduct 5% taper relief and £8,800, which means you get taxes on £12,575 of the gain and in basic rate tax you would pay £2,640.
Conclusion
In my opinion I would leave things as they are, that is the cheapest option!
If you have any queries on the above, please give me a call.
regards
Ilyas
