CGT for confused owner of two properties

[Giulia]

Hello,

I wonder if anyone can advise what should I do to avoid paying tax on one of the properties I wish to sell. My property investment story is as follows: I live in Oxford, renting out with my brother. In September 2003 I bought a house up north (property A), were my boyfriend lived for one year and were I lived myself mostly during weekends and breaks from work ( I travel abroad a lot with work). Last September me and my boyfriend bought another house together (property B) were I am hoping to move after finishing a course sometimes this autumn. From January 2005 I am renting out Property A but I intend to sell it and invest money abroad. I know that I should let Inland Revenue (IR) know which is my main residence, prior to selling the first house, in order to avoid paying CGT. I am planning to do so but I am not sure I can prove I lived there (although I have been paying one bill for almost one year). Unfortunately, when I bought any of the houses, I did not know I would have to inform IR about my residence status. Also, I have not been registered as paying council tax as I was contributing to my brother council tax and... but never bothered to register on the electoral roll as I am a foreigner who doesn’t like to get involved in your political life..

Thank you for your advise and for your time

[Tax Accountant]

QUOTE:
'In September 2003 I bought a house up north (property A), where my boyfriend lived for one year and were I lived myself mostly during weekends and breaks from work ( I travel abroad a lot with work).'

REPLY:
So this was your 1st property which you owned. You used this property as your residence but you also had other residences related to your work. This means that you had more than one residence. In this case you are required to nominate which was your MAIN residence for CGT purposes. Such an election is required to be made within 2 years of having two or more residences available to you. This time limit does not expire until September 2005 and you should make this election before that date.

QUOTE:
'I know that I should let Inland Revenue (IR) know which is my main residence, prior to selling the first house, in order to avoid paying CGT. I am planning to do so but I am not sure I can prove I lived there (although I have been paying one bill for almost one year). Unfortunately, when I bought any of the houses, I did not know I would have to inform IR about my residence status. Also, I have not been registered as paying council tax as I was contributing to my brother council tax and... but never bothered to register on the electoral roll as I am a foreigner who doesn’t like to get involved in your political life.'

REPLY:
This was not your main residence and therefore the criteria for proving a use as a residence is much less onerous. It is sufficient that you were using it as your residence as and when possible. You should simply write a letter to your tax office and state that you wish to nominate the property as your main residence for CGT purposes from the date of purchase to September 2004 (the date you purchased the other property jointly with your boyfriend). Assuming that the election is accepted (although you will not receive formal acceptance), the final 3 years of ownership of this property will automatically be exempted. additionally, due to lettings relief of upto £40,000 due to use of the property as residence and also letting, plus taper relief and annual exemption, you could keep the property as BTL for a lot longer than September 2007 and still not suffer CGT.

I should add that the Inland Revenue will normally simply keep your election on their file and may review the position as and when you sell the property. You may wish to consult an accountant to deal with the election on your behalf, although there is no reason why you should not do this yourself if you are confident. Ensure that you ontain at least an acknowledgement from the Inland Revenue of your election.

Ramnik

[Giulia]

Dear Ramnik,

thank you very much for your time and for sharing your knowledge. I wish I can refer to you as to a book every time I have a difficulty in understanding the property investment business in the UK

Giulia

[Tax Accountant]

You could also refer to Inland Revenue Help Sheet IR283 (downloadable from website). If you do not make any election, the question as to which is your main residence is determined by the Inland Revenue on the facts. main residence is determined by quality of residence rather than where you spent most time. On the basis of information set out in your query, I would say that your main residence was indeed the property A. I say this because this is the only property you owned until September 2004, your boyfriend (with whom you bought property B in September 2004) lived at the property and you also visited at weekends and during holidays etc. your other residences were work based and therefore not considered as permanent as your owned home to which you always intended to return.

But still best to make the election to put the matter beyond doubt.

Ramnik

[Giulia]

Hello again,

I wonder if anyone can help with a further advise.

I have called the Tax Service to ask them to record my permanent residence at the property A. I have been told that I may not have to pay CGT tax if I sell the house, provided I buy another property with the money obtained.

Is this true? I am not sure I want to but another property in the UK within the next 3 years.

Please help

Thanks
Giulia

[Tax Accountant]

If it is accepted that this was your main residence, there is no problem because you lived in here until it was let in January 2005 plus final 3 years exemption will take you upto January 2008.

The house was mainly occupied by your boyfriend and you worked and lived fulltime in Oxford where you were working. So how can you prove that the owned flat was your MAIN residence?

This is why it is safe to nominate the owned flat as your main residence just in case. The nomination has to be in writing to your normal tax office. Ensure to obtain their acknowledgement.

Ramnik