Weigh­ing up CGT

EDP Norfolk - - LAST WORD IN PROPERTY - Jon Hook, man­ag­ing di­rec­tor Nor­wich Ac­coun­tancy Ser­vices

On sell­ing your only or main home there is usu­ally no cap­i­tal gains tax (CGT) to pay, re­gard­less of the size of the gain. But the same is not true when an in­vest­ment prop­erty, such as a buy-to-let or a hol­i­day home, is sold or oth­er­wise dis­posed of, re­al­is­ing a gain.

Luck­ily there are steps that can be taken to min­imise the amount of CGT that is payable:

1 A key step is to live in the prop­erty as a main res­i­dence ‘for a time’. Not only does this al­low for the main res­i­dence ex­emp­tion but also ‘shel­ters’ the fi­nal pe­riod of own­er­ship and brings ‘let­tings re­lief’ into play which can be cru­cial in wip­ing out most, or all, of the CGT bill.

For a prop­erty to qual­ify as a main res­i­dence, it is all about the qual­ity, not quan­tity, of oc­cu­pa­tion. HMRC may look for ev­i­dence that the prop­erty was ac­tu­ally lived in as a main home. Ev­i­dence such as where the post is sent and the prox­im­ity to your doc­tor all help demon­strate to HMRC that you were se­ri­ous about mak­ing this prop­erty your home. The time isn’t as cru­cial and there is no ‘min­i­mum six months’ of oc­cu­pa­tion, a com­mon mis­con­cep­tion.

The pe­riod ac­tu­ally oc­cu­pied is counted as an ex­empt pe­riod plus the last 18 months of own­er­ship (although the govern­ment is think­ing of chang­ing this to nine

months) Also, to get the last 18 months ex­empt, the pe­riod of ac­tual oc­cu­pa­tion does not have to pre­cede the let­ting – it can be at any time.

2 By let­ting it out but liv­ing in it at some point, ‘let­tings re­lief’ is avail­able and is cal­cu­lated as the lesser of:

The amount of the Prin­ci­pal Pri­vate Res­i­dence Re­lief (PPR); £40,000; or

The amount of the charge­able gain aris­ing from the let­ting. It’s no won­der, given that this can of­ten elim­i­nate any CGT, that the govern­ment has de­cided to scrap it from April 2020.

3 Another strat­egy is to put the prop­erty in joint names be­fore sale. Ev­ery in­di­vid­ual en­joys an An­nual Ex­empt Amount (AEA) for CGT pur­poses of £11,700 so when a prop­erty is jointly owned there are two AEAs avail­able to shel­ter the gain, sav­ing tax of up to £3,276 for 18/19 (£11,700 28%)

Trans­fers of as­sets be­tween spouses and civil part­ners do not trig­ger a CGT li­a­bil­ity as they give rise to nei­ther a gain nor a loss. Take care, how­ever, if there is a mort­gage on the prop­erty as, de­pend­ing on the value, this may trig­ger a stamp duty land tax bill as there is a trans­fer of valu­able con­sid­er­a­tion.

Al­ways look at the re­spec­tive tax po­si­tions of both par­ties be­fore do­ing any­thing, as in some cases a full trans­fer may be bet­ter if CGT po­si­tion and mar­ginal rates vary be­tween the par­ties. The ‘win­dow’ to take ad­van­tage of some of these re­liefs is clos­ing rapidly, so it may be time to con­sider crys­tallis­ing a gain be­fore HMRC get their muddy paws on some of it.

This col­umn is spon­sored by Nor­wich Ac­coun­tancy Ser­vices

ABOVE: Could it be time to crys­tallise your gains to beat the tax­man?

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