Sarah asks: “I have 3 properties that are rented out, and am selling 2 so I can buy a property for myself to live in. I have lived in all of them as my own home at some point before letting them out, can I use the PPR and letting relief on all of them?”
Q&A 84 – Capital Gains When Selling Two Properties – Shownotes
I have 3 properties that are rented out, and am thinking of selling 2 so I can buy a property for myself to live in as I am currently renting which makes no sense what so ever!!!
I have lived in all of them as my own home at some point before letting them out, can I use the ppr and letting relief on all of them?
Also is it just a spouse you can gift too?? not a partner or child??
Here are rough calculations for the 2 properties I am thinking of selling
1. bought for £35,000 approx
2. should sell for approx £150,000 (although need to pay for lease extension have been quoted option 1 £16,000 option 2 £19,000 or can try a statutory lease extension?)
3. I bought the property in 1996
4, and lived there for about 2 years (does it matter the amount of time you lived there?? How do I prove this??
1, bought for £66,000 approx
2, Sell for £250,000.00 approx
3, bought the property 1999
4, lived in it for 6 years
This property will possible need some work done before being able to sell it, I know you have said that general painting doesn’t count, but does a new bathroom/kitchen and damaged walls and doors etc count??
I hope I haven’t missed anything, if I have please let me know and I am happy for you to use this on your website as a example.
Hi Sara.,Thanks for getting in touch.
Property 1: Lease Extension
You can use PPR and letting relief on any properties that were your private sole primary residence for that period of time.
For Property 1: For lease extension costs, these can be included in your base costs (so you don’t pay capital gains on them) if your extension is less than 50 years. The HMRC wording is:
- “legal fees for lets of a year or less, or for renewing a lease for less than 50 years”
Don’t forget also to add in your costs related to the sale and any improvements you’ve made to the property.
If you lived there for two years, you will get those two years and an additional 18 months relief on that property for PPR and then letting relief on top. You can calculate that as we have in the example here:
After your personal allowance, your tax bill shouldn’t be looking too hefty here.
Property 2: Capital Expenses?
For Property 2: Same applies.
You will have 6 years of PPR & letting relief, and you’ll be able to include any costs related to the purchase, sale or improvement of the property. The definition of improvement is that it doesn’t just replace the old thing that was in bad condition.
So, if you had a £5,000 kitchen fitted, but had it for 10 years and it needed replacing, the new £5,000 kitchen would simply be a repair, not a capital spend. Based on that, damaged walls and doors won’t usually count, unless you are putting in a significantly better wall or door.
Also, in response to your question, you can only gift to a spouse/civil partner and not to children for capital gains tax.
The secret with both of these is making sure you get as much PPR and letting relief as you are allowed (see above). I would also recommend trying to sell one in the 2015-16 tax year (before 5th April 2016) and another one in the 2016-17 tax year, so that you get to use your personal allowance twice.
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