CGT and SDLT liabilities on sale and the definition of "main residence" when renting

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    CGT and SDLT liabilities on sale and the definition of "main residence" when renting

    Hi folks, looking for thoughts on both CGT and SDLT considerations.

    My spouse and I jointly own a one bed flat (property "b") that we moved out of five years ago for somewhere bigger; we now rent a three bed place (because we have a kid and couldn't afford to actually buy something bigger at the time). I also own a flat in my sole name (property "a"). Both the flats we own are let out.

    We are now in a position to buy (hopefully) a family home ("property c") and want to sell both "property a" and "property b". We only need to sell the last one we lived in (property "b") to be able to purchase [a so far hypothetical] "property c". But ideally I would like to sell both as soon as feasible.

    I have found myself down a few rabbit holes wrt both SDLT liability and CGT and confusion around what constitutes our 'main residence'.

    I called HMRC and was told that our 'main residence' could not be the place we rent, so it would be the place we own that we lived in last (property b). And on that basis, then:

    1) we would not be liable for CGT when we sell "property b"
    2) we could buy a new place before selling "property a" as it would be a "replacement of a ["property b" which is deemed] main residence" and therefore exempt from the extra 3% sdlt - even though I would still own "property a"

    To me, the logic of (1) seems wrong; my reading of the CGT liability is that we should have to pay CGT on "property b".

    Regarding (2) I am struggling to find any definition of "main residence" in HMRC guidance... we are particularly worried that we would be liable for the 3% additional sdlt - we simply couldn't afford that.

    If we were to be liable for it, then my understanding is that so long as we dispose of "property a" within 12 months of acquiring "property c" then we could apply for a refund...

    The CGT question relates to the SDLT one only in so far as IF we are liable for CGT on "property b" then it means we should wait until the next tax year to sell "property a" otherwise we'll have to pay £12300*2 more in tax this tax year...

    Super grateful for any thoughts on this - hopefully have made clear our circumstances (they're not simple!)






    #2
    Your main residence is one of two things.
    It's where you actually live, or, if you live in more than one place, it's where you've notified HMRC you wish to treat as your "main" home.
    So it's a matter of fact in most cases, rather than a definition.
    And today you clearly live in the flat that you rent,

    Taking the two things separately.
    If you were to sell a and b and buy c (simultaneously or in that order), at the end of the day of completion, you would have only one property and therefore the additional 3% SDLT wouldn't apply.

    As I understand it, the previous residence rules are not time limited, so that replacing any previous residence follows the replacement residence rules, so what happens with regard to a depends on whether you used to live in a and whether the purchase of b was before or after 1st April 2016.

    This is a bit complicated and I'm assuming that you used to live in a and then purchased b with your spouse before 1st April 2016 (and I'm still not 100% sure I'm right!).
    You treat each buyer as individuals.
    It's not possible for both a and b to be your previous residence, so for this transaction it has to be b, and for your spouse it is b (and even if they had lived in a for a period, they would follow the same logic as you.
    That applies even though for other purposes your rental property is your main residence - it's only the residences you own that matter here.

    So my understanding is that the purchase of c replacing b would mean you could reclaim the surcharge because what's being replaced is your main residence.
    You wouldn't have to sell a to have that effect.
    There are lots of contradictory examples (which are based on the basic premise that if at the end of the transaction you own more than one property the surcharge is payable).
    But the exemption for a replacement residence seems to avoid that, so that, even if you own several properties, the residential status excludes the surcharge.
    That's counter intuitive, but example 1 here is helpful - https://www.blakemorgan.co.uk/sdlt-s...ated-guidance/

    As regards CGT, I think the HMRC "advice" is wrong.
    You are liable for CGT on any property gain above your personal allowance(s), with the exception of any gain while you were living there as your main residence (currently plus 9 months).
    So you wouldn't be taxed on all of the gain for b, but you would be taxed on the gain for the period you weren't living there (less 9 months).
    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


      #3
      Thanks jpkeats, that is super helpful. you are correct we both lived in both places after purchase as they were intended originally as homes.

      We bought “property b” in 2015, yes - before the SDLT changes came into effect. So your steer on what constitutes “the main residence” is consistent with what I was told on the phone.

      It makes total sense re CGT. Happy to pay the tax just wanted to check the logic! I may have misunderstood and conflated the two items when I spoke to HMRC (with a dose of wishful thinking!).

      As such we ought to wait until the next tax year before selling “property a”.

      one further question on CGT on that (property a) - given it is currently in my sole name, but I am married, which of these is true:

      1) only my personal CGT allowance is going to be usable;

      2) both me and my spouse will be taxed on the sale and so both of our CGT allowances can be used; or

      3) if we transfer ownership before the sale so that she is a joint owner, then we can benefit from the CGT allowance for both of us…

      Comment


        #4
        Originally posted by meehr View Post
        One clarification question: we bought “property b” in 2018 - you mention 2016 as of significance- what is the implication of that?
        When you bought property b in 2018, the current regime was in place, so there must have been some discussion and a resolution of part of your posituation then.

        As you already owned a (and had both lived there), there must be some record (or at least some indication) that b was your main residence for SDLT calculation purposes.
        Otherwise, you'd have paid the surcharge for b, and, presumably, you didn't.

        If you didn't, and have made no other property purchases, since, b is much more certain to be both of your previous main residence for this purpose.
        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
          Originally posted by jpkeates View Post
          When you bought property b in 2018
          I am so sorry, I had a total brain freeze when replying first and read 2018 as 2015. It was 2015. I subsequently edited my post. Apols!

          Comment


            #6
            No problem.
            1 and 3 are true.
            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

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