Principal Residence releif from CGT

[sober]

I have a few questions re the treatment of PPRs

My Husband and I live in his house. I bought a house on BTL mortgage some years ago and we lived there for a month while his house was being refurbished, after that my hsubands parent live in my house, where they pay the rent=mortgage interest - and shown as such on my tax return.

Can I elect to treat my property as my PPR for CGT purposes?

What will become of his PPR status on his house if I do the above?

Do we have to actually move to my house to be able to do the above?

And if we do move, then from the market valuation point of view, is there any declaration to be made if he then rents his house to his parents instead of my house and start ofsetting the mortgage interest on his house. Am I correct in assuming that his house could be valued as rental property from the day he rents it to his parents?

Thanks
Sober

[Tax Accountant]

I have a few questions re the treatment of PPRs

My Husband and I live in his house. I bought a house on BTL mortgage some years ago and we lived there for a month while his house was being refurbished.

I don't consider that your one month's stay is enough to count it as being used as a home for PPR. Therefore, in my opinion, you don't have any PPR use in this property at present.

After that my hsubands parent live in my house, where they pay the rent=mortgage interest - and shown as such on my tax return.
Can I elect to treat my property as my PPR for CGT purposes?

NO. You can only nominate a house as your main residence for PPR purposes if it is being lived in by you as a home.

What will become of his PPR status on his house if I do the above?

This question is not relevant as you cannot nominate the above house as your main home as you are not using it as a home.

For your information, a couple is allowed to have only one main home for PPR purposes at any one time. Therefore, if the above house could have been nominated as a main home (eg. if you were using it as your second home), the husband's house would stop qualifying for PPR from then onwards.

Do we have to actually move to my house to be able to do the above?

Yes.

And if we do move, then from the market valuation point of view, is there any declaration to be made if he then rents his house to his parents instead of my house and start ofsetting the mortgage interest on his house.

Nomination or declaration is NOT required because you will still have only one house being used as a home.

Am I correct in assuming that his house could be valued as rental property from the day he rents it to his parents?

The period after moving out does not qualify for PPR relief except that a further period of upto final 3 years of ownership is also treated as PPR regardless of however it has been used.

But a valuation is not required at the date of letting because all gains is spread evenly over the whole period of ownership.

Letting a property which has been a PPR at anytime in your ownership will qualify for 'lettings allowance' of UPTO £40,000 to reduce or eliminate any gain which is outside the PPR period.

Thanks
Sober

See replies above in red.

Ramnik

[sober]

Thanks Ramnik for a detailed reply.

Yes I understand 1 month in the past does not qualify for PPR, I was not sure if a BTL property can ever qualify as PPR (by e.g moving into it ouselves, and moving the parents out)

Wasn't there a concenssion from CGT on property used for parents / elderly relatives?

Just to clarify some of the points still niggling a bit.

say we move into my house on 1 jan07 - how will i demonstrate that this is now my/our PPR from then onwards and conversely that his house in not.

The Valuation question was more to do with allowable expence against income for the interest on present mortgage and to cover any future borrowings on his house, rather than CGT - (which I think you have answered elsewhere in quite some detail - but does that aply to our case). He thinks he might be able to but I am not so sure. Moreover will he not need permission from his lender?

Does he have to delcalre that his house is now rented - cos I read someware you have to show within 6 months to Inland Rev if newly renting property - my husband already fills his tax returns with income from a small flat he rents out to an uncle.

Thanks a zillion
Sober

[Tax Accountant]

Thanks Ramnik for a detailed reply.

Yes I understand 1 month in the past does not qualify for PPR, I was not sure if a BTL property can ever qualify as PPR (by e.g moving into it ouselves, and moving the parents out)

There is no such a thing as a BTL property as far as CGT is concerned. BTL is simply a term invented to indicate that a property has been bought for letting purposes. CGT is base on the actual usage to which the property has been put to.

Wasn't there a concenssion from CGT on property used for parents / elderly relatives?

Yes, it applied where a property was owned at 5 April 1988 and has been used continuously since then by a 'dependent relative' rent free. Paying mortgage interest would not constitute rent-free.

Just to clarify some of the points still niggling a bit.

say we move into my house on 1 jan07 - how will i demonstrate that this is now my/our PPR from then onwards and conversely that his house in not.

This is based on actual facts. Eg, Council tax records, address where post is being delivered, address changes at Bank, DVLA, Doctor, employers, address where you are registered for voting, address notified to your tax office, address where you live and sleep, address where you park your car every night, address where you are registered to collect your pension, etc.

The Valuation question was more to do with allowable expence against income for the interest on present mortgage and to cover any future borrowings on his house, rather than CGT - (which I think you have answered elsewhere in quite some detail - but does that aply to our case). He thinks he might be able to but I am not so sure. Moreover will he not need permission from his lender?

Interest will be allowable on a loan upto its value when it is first let. I don't think this will be too difficult to ascertain. If you are particularly concerned, get it valued by three agents (free) by pretending that you wish to sell it. Get cuttings from local newspaper selling other similar properties in your street, get sales particulars from agents selling similar properties in your area, get actual selling values achieved from Land Registry records of similar properties.

Does he have to delcalre that his house is now rented - cos I read someware you have to show within 6 months to Inland Rev if newly renting property - my husband already fills his tax returns with income from a small flat he rents out to an uncle.

Yes - but if the rent equals mortgage interest, and there is definitely no profit, he may not be required to fill in the tax returns by his tax office. It is best to write a letter and obtain confirmation of the position from the tax office.

Thanks a zillion
Sober

See replies above in red.

Ramnik

[sober]

Thanks Ramnik for your detailed reply.

Very useful indeed.

However I have hit another problem. my inlaws are refusing to move out and are claiming that the house is theirs since they are paying the mortgage, and that it was mine marely in name and they were the benificial owners from the start. The BTL mortgage is my name and the majority of the deposit was put down from our savings - the inlaws had given a small amount to my husband to cover the costs on completion.

If anyone knows, can they do that?

Thanks
Sober

[Tax Accountant]

Thanks Ramnik for your detailed reply.

Very useful indeed.

However I have hit another problem. my inlaws are refusing to move out and are claiming that the house is theirs since they are paying the mortgage, and that it was mine marely in name and they were the benificial owners from the start. The BTL mortgage is my name and the majority of the deposit was put down from our savings - the inlaws had given a small amount to my husband to cover the costs on completion.

If anyone knows, can they do that?

Thanks
Sober

What does your husband say?

Can you prove that you and your husband paid all the deposit?

Who has been paying the buildings insurance and repairs?

Have you any evidence to show that your in-laws were living in your property as tenants or as your relatives, but not as owners?

If there is no assured shorthold tenancy agreement in place from the beginning, they may have become sitting tenants.

In the final analysis, you will need to see a solicitor to resolve the issue.

Good luck.

Ramnik