autodesk factory design 2017 for pc price Petula asks: “I bought a flat in 1999 for £46,000 and have rented it out since then. I am considering selling it for around £150,000. Should I live in it for a year so that I’m eligible for PPR relief?”
Q&A 64 – Capital Gains Tax When Gifting To Children – Shownotes
I bought a flat in Cambridge in 1999 for £46,000 and have rented it out since then. I am considering selling it to help my daughter buy a flat in London.
I estimate the selling price to be around £150,000.
Should I live in it for a year so that I am eligible for PPR relief? Also, am I eligible for letting relief if I have not lived in the flat?
(I am self employed, 62, and earn around £20,000 pa)
Thanks for your question Petula. I’m afraid that this answer might not be what you were hoping for, but here goes…
Your Capital Gain
Unfortunately, if you have never lived in the property as your only (or primary) residence, then you cannot claim either PRR or letting relief, and you will need to pay capital gains tax on your gain.
This will be calculated as follows:
Sales price – £150,000
Less purchase price – £46,000
Less capital improvement – £x
Less sales costs – £5,000
Therefore, assuming no capital improvements, you would have to pay capital gains tax on £99,000. You won’t be eligible for PPR relief or letting relief and I’ll explain why in a second.
So, you can then use your annual exempt amount of £11,100 to reduce your taxable gain to around £88,000. You have used the pronoun “I” in your question, so I’m going to assume you own 100% of the property yourself and don’t have a partner.
Calculating Your Tax
To work out your tax bill, you then have to take you current income for the tax year (the amount on which you pay income tax) and subtract it from the high end of the “basic rate tax level” including your personal allowance. For the 2015-16 tax year (see the government website for latest figures), this figure is £42,475, and so with your salary of £20,000 per year, this will leave £22,475. On this figure, you’ll pay 18% and on the remaining taxable gain you’ll pay 28%.
£22,475 x 18% + £65,425 x 28% = £22,364.50 tax to pay in this example.
So, let’s take a look at the reliefs in more detail.
Capital Gains Tax Reliefs
The PPR relief and letting relief are designed for people who only live in one property, or who have nominated a specific property as their primary residence. Therefore, say I lived in a house for 5 years, and then rented it out for 3 years before I sold it, I could claim PPR and letting relief against capital gains tax on that sale as it was my primary residence for part of the ownership period.
According to HMRC, when you own a combination of properties, you have two years to nominate which property is your primary. Therefore, Petula, if you have owned both your own property and this flat in Cambridge since 1999, you may struggle. If you haven’t made this election, HMRC will decide which of the two properties is your main residence, which will clearly not be the flat in Cambridge given that you have rented it out for 16 years.
Regarding your question of moving into the property, I believe that (due to the 2 year election rule), you’ll still not be able to elect this as your primary residence unless you sell your own home to create a different “combination of properties” and then move into (or elect) this property as your main residence.
You’ll find a link to the government guidance on PRR:
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