Rollover relief on residential letting property

Hi,

I own a second property which was purchased 3 years ago for £103k and which has been rented out since then (assured shorthold tenancy). This property is located about 100 miles from where I live. The decision to buy there was based on the fact that I had family there at the time and the property prices where much lower than were I live. Since then the family has moved away and property prices have risen in that area. The current tenant has decided to move on so now is a good time to move the property closer to make it easier to manage. I've had some estate agents around and they have valued it at £210k - £220k, so the capital gain is substantial. Buying a similar property locally is still going to cost more than the £220k mark so all the gain will be reinvested.

I have been advised that rollover relief on capital gains does not apply to privately owned property that is let on a residential basis. If this is the case I would be faced with a crippling capital gains tax bill. It would be more sensible to keep the existing property and employ someone to manage it.

Can anyone shed any light on this for me? Is there any way I can avoid capital gains if I sell up and reinvest?

Thanks in advance, Nick.

Reply to
whatman
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In message , snipped-for-privacy@rmplc.co.uk writes

Went into this in detail with my accountant a while ago, and the short answer is no.

Reply to
Richard Faulkner

AIUI the only way to avoid CGT on your investment property is to make it your home prior to selling.

You can't, I think, do this by the PPR election mechanism since it's more than 2 years since you bought or sold an eligible property, so it would have to be on the facts. Unless you can afford to buy a

3rd property before selling the 2nd (and having all 3 in concurrent actual use as your residences), or are willing to sell the 1st, you'd have at least to give up use of the 1st as a residence, by properly moving into the 2nd and preferably renting the 1st out for a while, to give strong credence to your claim that the 2nd was in fact your PPR by virtue of actually being your sole residence for a time.
Reply to
Ronald Raygun

Blimey, never seen this in the UK, seen it in N. America though !

I guess it depends exactly what you roll over.....

Sorry, not much help, at a guess I'd say it's not available. Try IR150 and IR283. Links on my webpage

CGT on let houses is a FAQ -

Daytona

Reply to
Daytona

You cannot nominate a tenanted property as a PPR, since it is incapable of being your residence. Once it's empty is another matter, but one still has to reside in it.

Reply to
Doug Ramage

Exactly. I didn't suggest that he should.

Isn't that what I said?

At the moment, the OP has two houses, A and B. He lives in A and rents out B. He wishes to sell B and buy C. He could kick the tenant out of B and make it a second home for himself. He could then make a PPR election nominating B as his PPR, except that it's too late for that since it has been more than 2 years since he bought B [unless the fact that kicking the tenant out counts as a change to the set of properties available to him as residences and that this would reset the 2-year clock -- does it? In the above I assumed it does not, but am not sure that's correct.]

I suggested he move out of A and into B, and that in order to make it absolutely clear that B will now be his sole residence, he should let out A for a while, thus removing it from any possibility of being deemed his PPR still.

This course of action would give PPR status to B, not by the election path, but on the facts, and would thereby escape the 2-year rule, since that only applies to elections.

Reply to
Ronald Raygun

That looks like the long answer to me :-)

(the short one consists of 2 letters)

tim

Reply to
tim

So are you saying that when he stops letting property B and starts using it as a residence, this would count as an "acquisition" and re-start the clock, thus making it eligible for PPR nomination, even though he acquired ownership of it 3 years ago?

Reply to
Ronald Raygun

Thanks to all who have replied. It looks like I'll need to be creative if I want to move the property closer. Given the cost of buying and selling it will probably be cheaper in the long run to pay a local letting agent to look after the existing property.

Thanks again, Nick.

Reply to
whatman

IMO, the 2 year limit applies to acquisition of 2 (or more) * residences*, not merely the ownership of 2 (or more ) properties.

Reply to
Doug Ramage

Yes.

Reply to
Doug Ramage

I should add I think that the clock starts running when the let property is capable of being a residence, not when the person takes up occupation. This is likely to be when the tenant moves out - assuming the place is habitable. :)

Reply to
Doug Ramage

Here's an idea - maybe crazy but got me thinking....

Obviously the only way to minimise or avoid CGT is to make a captial loss. So how about this?

I bought A for 100,000 - its not worth 150,000 - if I sell this, I pay CGT on 50k minus the annual exemption I now buy B for 150,000 and sell it to a family member for 100,000 and recover the 50k plus interest via the rent over say 5-10 yrs. I would have no CGT to pay and 100,000 to invest in a new property.

I own a second property which was purchased 3 years ago for 103k and which has been rented out since then (assured shorthold tenancy). This property is located about 100 miles from where I live. The decision to buy there was based on the fact that I had family there at the time and the property prices where much lower than were I live. Since then the family has moved away and property prices have risen in that area. The current tenant has decided to move on so now is a good time to move the property closer to make it easier to manage. I've had some estate agents around and they have valued it at 210k - 220k, so the capital gain is substantial. Buying a similar property locally is still going to cost more than the 220k mark so all the gain will be reinvested.

I have been advised that rollover relief on capital gains does not apply to privately owned property that is let on a residential basis. If this is the case I would be faced with a crippling capital gains tax bill. It would be more sensible to keep the existing property and employ someone to manage it.

Can anyone shed any light on this for me? Is there any way I can avoid capital gains if I sell up and reinvest?

Thanks in advance, Nick.

Reply to
Jeff

methinks you have missed a bit out of your idea.

Yep, so are you selling it or not?

This will give your relative a CGT problem when they sell.

How do you gain from renting out a property that you no longer own.

How is it that you have no CGT to pay? If 100K houses now cost 150K what can you buy with your 100K?

tim

Reply to
tim

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