Minimising CGT

[Jaybee542]

I bought a house in 1994 and lived in it until April 2008.
I bought another house (to live in) in November 2007. However, due to the works that needed doing, didn't move into it until April 2008.
Between November 2007 and April 2008 the market took a serious downturn so, instead of selling House #1 decided to let it out whilst living in House 2.
I am thinking about selling House 1 next year. I understand that if I sell within 3 years of living in the property I can avoid CGT. Is that right? What is the relevant date for these purposes April 2008 (when I moved out) or November 2007 (when I bought House 2).

What about if I sell House 1 after 3 years. I think I heard that you could make an election within 2 years to get CGT exemption on a property other than your main residence. It may make sense as I don't plan to move from House 2.
Any help appreciated.

[TaxationPete]

Your PPR is a matter of fact. You moved out of House 1 in April 08 so the 36months clock started and any disposal in that time frame will be exempt for CGT. After this period Letting Relief will kick in and further offset any CG up to a maximum of £40,000 per qualifying owner so the property could remain free og CGT for 5,6,7 or even more years depending on what house prices do in the future. Read IR283 on the HMRC seb site.
House 1 was your PPR so the above applies nominating it as your PPR is pointless and exposes house 1 to CGT. Hope that helps. Regards Peter

[Telometer]

Not sure I understand Pete's last sentence. Not least as you are not in a position to make any elections.

However, you should:

1. Do nothing. The reality of the situation is that you lived in 1 until April '08, so 1 qualifies up to that date.
2. If you sell 1 before April '11 there is no tax at all as it is deemed to qualify as your PPR until that date.
3. If you sell it after April '11 and before 2025 there will be no tax on the first 40k of otherwise taxable profit (calculated as (profit on sale)x(sale date - april '11)/(total ownership period)); you also get your annual exempt amount tax free.

4. House 2 qualifies as your PPR from the acquisition date.

[TaxationPete]

My mistake the last sentence should read 'exposes House 2' Regards Peter

[Telometer]

My mistake the last sentence should read 'exposes House 2' Regards Peter

Still makes no sense, as he is not in a position to make an election as it is rented out...

[TaxationPete]

No they are not in a position to nominate house 1 as the PPR again, but I was striving to find out why they thought there was some benefit, particularly as it would have exposed house 2 to CGT. Regards Peter

[Telometer]

I think he thought you had to elect if making a disposal within three years. There have been so many ill-written articles in the papers over the last few weeks following the MPs' scandals that many are confused. Expect a rash of ill-thought elections.

[Jaybee542]

Thanks for the responses. Very helpful and much appreciated. The reason I thought it may make sense to make an election is that I would like to sell House 1 - when the market recovers a little - and would really prefer not to have to pay CGT on any gains. Since I have no intention of selling House 2, there wouldn't be any CGT anyway (i.e capital gains, if any, will not crystallise).

If I understand what has been said correctly, if I sell House 1 after April 2011, I will only have to pay CGT on any gains made since that date and I will get my annual allowance? If so, that's very helpful.

Thanks again

[TaxationPete]

Nobody said that. CG is based on the selling price minus the original purchase minus costs of acquisition and selling minus andy relief's like PPR apportionment including the 36 months, letting relief and your allowance, the resulting gain it then taxed at 18%. The gain is treated as linear over the period of ownership. Regards Peter

[Jaybee542]

OK. Thanks for putting me straight. Again the responses from you and Telometer are much appreciated.