My main residence is valued at 400k . My wife and I will…

Hi John

Thanks for your question.

Your main home - qualifies for Private Residence Relief - as this has always been your main home, and, as long as you sell it within 36 months of moving from it to the smaller property is Cumbia, there will be no capital gain consideration on this property.

The property you plan to buy in Cumbria - will have a capital gain implication, that will be considered when this property is sold.

If you move into it as your main residence, then although the gain is treated as having accrued evenly over the whole period of ownership, there will be some consideration towards this gain, that qualifies for exemption for any time you live there - (plus the last 36 months of ownership)

So for example you buy Cumbria 2010, sell it 2015 and live there from 2013 to 2015

Then of the 60 months of ownership - 36 months that you live there will be exempt with Private residence relief, plus the last 36 months of ownership = 72 months - so no gain arises, as this fully covers the 60 months of ownership

If however you buy 2010 and sell 2020 and live there from 2015 to 2020 - then of the 120 months of ownership - 60 months you live there plus the last 36 months of ownership will be covered by private residence relief - so a total of 96 months will be treated as exempt.

If the gain in 2020 was £80,000 then the exempt amount would be £80,000 x 96/120 = £63,999 leaving a chargeable gain of £16001

As each individual has a capital gain exemption - which for this tax year is £10,000 then it would be £16,001 less annual exemption £10,100 = £5901 that was chargeable

If the property was in joint names you would each have an annual exemption - so of the £16001 - each of you would have a gain of £8000.50 covered entirely by each of your annual exemption allowance.

Just note that the annual exemption limit could change each tax year, and whilst the current rate of capital gain tax is 18% - this too is subject to change

Thanks

Sam