Emily asks: “We bought a London property in 2007. We lived in it for 2 years then on and off for a further 2 years. We rented this out from 2010 to the present day. Is there anyway we can avoid paying further capital gains tax?”

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Q&A 78 – More Capital Gains Tax Questions – Shownotes

Emily asks:

I was hoping you could help me with the below;

We bought a London property in 2007. We lived in it for 2 years then on and off for a further 2 years.
We rented this out from 2010 to the present day.

We bought another property in 2011 in Edinburgh, this is our PPR. We are now selling this property and are going to rent.

Is there anyway we can avoid paying further capital gains on the property in London going forward?

Thanks.

 

Thanks for your question Emily. I also got back in touch with Emily to clarify that she would be renting where they’d be living in Edinburgh, and keeping the property that they own in London and rending that out to tenants.

 

PPR Relief

Given that Emily is renting her property in London, the main way that she may avoid paying further capital gains on the property is through PPR relief.

It may be reasonable to assume that because Emily only owns one property (she is renting in Edinburgh), that this would automatically be considered her primary residence and hence, once she sells the property in Edinburgh, the one in London would be exempt for capital gains whilst she only owns one property.

.

 

What Is A “Main Residence”?

However, based on my analysis of the HMRC website, it isn’t quite this straightforward.

Firstly, to qualify for PPR relief on the London property, it has to be your “only or main residence”. Under this section, the HMRC stipulate that you must “live in” the property which is to be designated as your primary residence.

This is then again further supported by the wording in the “period of absence” section which speaks in terms of “occupying the property” rather than owning the property.

The final kicker comes from the overview section, which states:

“For Private Residence Relief, you don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply”

The first of these criteria is:

• you have one home and you’ve lived in it as your main home for all the time you’ve owned it

You can see therefore that PPR relief is based on where you’ve lived rather than what you’ve owned.

 

 

Other Alternatives

Therefore, beyond making sure that you structure a sale tax efficiently when you do sell the London property, that you and your partner both own 50% so you can both use your personal allowances, there is no obvious way to reduce your capital gains tax liability in the future. Well, other than selling now and buying in Edinburgh if you plan to stay there, or moving back home to your property in London.

 

 

 

 

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