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Advice from 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 2008. I purchased my existing residence on 5th September 2008 and took out a buy to let mortgage. The property was then let on 19th November 2008 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 2011, 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 2013, you are allowed until October 2011 as deemed occupation and then from October 2011 to 2013 will be the period when you will pay capital gains tax less your annual capital gains tax allowance. In addition there is also a relief called ‘private letting relief’ which is the lowest of:

–          £40,000

–          The amount of private residence relief due

–          The amount of gain you’ve made

This is best demonstrated by example:

Cost of property £50,000
Sell in 2013 £200,000
Gain £150,000
PPR, therefore taxable gains would be on 3 years divided by the 15 years of ownership, in figures means taxed on £30,000 of the profit.
On this £30,000 you deduct the annual allowance of £10,600 (2012/13 rate) leaving a gain of £19,400.

The letting relief available is the lower of:

–          £40,000

–          £120,000 (PPR due)

–          £30,000 (gain on the property)

This will wipe out the gain on the property meaning that there will be no capital gains tax to pay!

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.