CGT on Primary Residence that is being split

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    CGT on Primary Residence that is being split

    We bought our home 20 years ago.
    7 Years ago we developed an outbuilding and have been renting that out.
    We have continued to live in the main house.

    We are trying to understand our CGT liability should we wish to formally split the property and sell the main house.

    Does the CGT liability occur when we split the property or when we sell the main house?
    What reliefs would be entitled to?
    We intend to move into the outbuilding on sale of the main house, could this affect the calculation/reduce our liability?

    Thanks in advance for any pointers.





    #2
    The capital again from sale of your house ( owner occupied for 20 years ) is exempt for capital gains tax.

    After sale of your outbuilding , the capital gain is apportioned between letting period and main residence period.

    The gain under the letting period is liable for capital gains tax.

    Comment


      #3
      Thanks Gordon.

      So if we assume the gain on the outbuilding is 300K over 20 years.
      We can offset the redevelopment costs, offset PPR and offset Lettings relief?
      Redevelopment cost: 50K
      PPR: 250K * (13/20) = -162.5
      Lettings Relief: 250K * (7/20) = -87.K so 40K max.
      Would leave a CGT of 47.5 * 0.28 = 13.3K
      Can we then use both our CGT allowances to cancel out that out and pay nothing?



      Comment


        #4
        If the redevelopment costs were a) not previously claimed against income and b) materially increased the value of the property, they're allowable against the gain.

        Is the outbuilding a separate piece of property, or is it part of your residence?
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          You can live your dream hoping to pay nothing after sale of outbuilding in 13 years.
          But I suspect the £40K lettings relief may be next target for the chopping block .

          The allowances given to letting landlords are slowly being withdrawn .
          Already "10% Wear and Tear" has been withdrawn and
          we are in transition phase on mortgage interest; reducing 40% to 20%.

          Comment


            #6
            Originally posted by jpkeates View Post
            Is the outbuilding a separate piece of property, or is it part of your residence?
            It's all on the same title at present, but the outbuilding is not attached to the main building.

            Comment


              #7
              Originally posted by Gordon999 View Post
              You can live your dream hoping to pay nothing after sale of outbuilding in 13 years.
              .
              Sorry, are you saying we wouldn't be able to claim any relief for the 13 years we didn't rent out the outbuilding and we would have to build this up again after the sale of the main building?

              Comment


                #8
                Originally posted by splitdreams View Post
                It's all on the same title at present, but the outbuilding is not attached to the main building.
                You should take some proper tax advice, as it's not something I've come across before, but which must have happened before)

                Why do we think there would be any CGT at all.
                You've been renting part of your residence (which might be more than one building, but it's all one property).
                You've paid to improve it and it's increased in value, but you haven't yet created a new property.

                But unless the outbuilding is larger than the main house, separated from it by a road, waterway or fence/wall it should be within the curtillage of the house - and, therefore, is simply a subsidiary part of it.

                When you did the conversion, presumably it was done under permitted development for the main house (which should include the outbuilding)?
                If it needed planning permission, that permission would confirm whether what was being constructed was a new property or a change to the current property.

                When you actually split the property, I think that would be a tax event (with no CGT because there's no CGT on your primary residence.)
                From that point, the property you aren't living in starts a taxable gain.

                Again, don't crack open the champagne without getting this confirmed - there may very well be tax regulations I've never come across relating to this.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  Splitting the property at the Land Registry is not a taxable event.

                  If you sell your main residence, then that is tax free.

                  To calculate the gain, we need to know what you paid for your house, and what the house and cottage are - separately - worth today. How big a plot is it (the whole thing)?

                  Comment


                    #10
                    Originally posted by splitdreams View Post

                    Sorry, are you saying we wouldn't be able to claim any relief for the 13 years we didn't rent out the outbuilding and we would have to build this up again after the sale of the main building?
                    For sale of house, its been your main residence for 20 years and the total capital gain will be exempt for cgt.

                    For sale of outbuilding , if used year 1 to 7 as BTL and year 8 to 20 as own residence .

                    So if we assume the sale price on the outbuilding is 300K after 20 years.
                    Building cost: -50K
                    PPR: 250K * (13/20) = -162.5
                    Capital Gain during BTL = 250K * (7/20) = 87K
                    Assume 40K lettings relief not available .
                    Capital gain each = 43.5K , assume personal allowance = £12K
                    Expect higher rate tax liability = 31.5 K @ 28% = £8.8K

                    Comment

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