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Sam Pathak
Sam Pathak, Mr S Pathak MBA FCCA CTA
Category: UK Tax
Satisfied Customers: 465
Experience:  Tax Consultant & Freelance Lecturer over 9 years experience
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I am considering of selling my second home and buy a new property,

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I am considering of selling my second home and buy a new property, I would appreciate some advice on the capital gain tax.

I bought my first property in my sole name in London in September 2010 and then I bought the second property in my sole name in London in June 2012. I wanted to move into the second property and sell my first property in 2012, but the market was not good. I lived in the second property for a few months but mainly my partner is staying there as the property is close to his work place. The property was only rent out for three weeks, but we had issues with the tenants so they moved out after three weeks and we decided to keep the apartment for ourselves. All bills and council tax are registered under my sole name.
I haven't declared my main residence yet, I was wondering can I elect this second property as the main residence, then change the first property back to main residence?
1st Property was bought in September 2010 at £320,000, worth £400,000 now
2nd property bought in June 2012 at £264,000, worth £300,000 now
In addition to this, I am considering to buy a new property after sold the second property. I will move into the new property and rent out the first property (A buy to let mortgage is obtained for the first property).

Please could you advice the capital gain tax and suggesting opportunities to reduce any tax that is due?

Thanks

Hello,

Thank you for your question.

RE: Main Residence - CGT issues

To start with, it is advisable to formally elect the second home as your main residence and notify HMRC (under s222 of TCGA'92). And, as you mentioned, some time later, elect back to the first home.

This would then save some (or all) of the CGT under Principal Private Residence (PPR) exemption, as the last three years will always be treated as 'deemed occupied' (and so exempt from CGT), even if you have not actually lived in it during the last three years, provided you have lived in it as your main residence at some point in the past.

Also, one other potential tax planning point is that (depending upon your circumstances) you may wish to keep the property in joint names with your partner/spouse, by which two lots of Annual Exemptions will be available for deduction from any potential taxable gain in future (£10,900 x 2 for the tax year 2013/14, likely to change every year).

However, you will need to give full considerations on your all other non-tax factors before making any decisions.

Finally, as you mentioned that you are considering buying another property - if you carry on buying and selling properties regularly and more frequently, HMRC might argue that you are 'trading' rather than 'investing', in which case they might try to seek to charge income tax rather than CGT. You would, therefore, need to take some care on this also.

Considering the potential amounts of tax (and risk!) involved, it is advisable to seek independent professional accountant/tax advisers service in such cases, before making any decisions and proceeding further.

I trust the above helps.

Best wishes
Sam Pathak
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