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PPR capital gains &letting relief

PPR capital gains &letting relief

Any help would be greatly appreciated.

In Aug. '07 I sold a small terrace house I'd owned for 4 years 10 months, which I had rented-out and then lived in.

The house was bought with the intention that it would be my own home. However, at the time of purchase, due to medical reasons, I was unable to work, so bought the house on a buy-to-let mortgage and rented it out, whilst I lived with my parents. This situation continued for approx. 4 years 6 months: house rented out, and me living without employment with parents.

After this time I began living at the property (still with btl mortgage) with the hope of staying indefinitely. Due to continued difficulties, however, I decided it would be best to sell the house (not wishing to rent it out again), and return to living with my parents. I put the house on the market, therefore, and it sold very quickly.

Between the tenants leaving and completion of the sale, I lived at the house for 4 1/2 months. After costs the capital gain was @£60k. My only income for the 07/08 tax year is @ £2,500 from bank interest.

My questions:
1) Is there likely to be any problem establishing PPR? I have utilities bills, a land-line phone bill and council tax bills addressed to me there, as well as letters from my estate agent and solicitor concerning the house sale. (Although apart from these, I'm not sure what else I could show).

2) Assuming PPR is established, am I eligible for letting relief? If I am, would it be equal to the relief for the 4 1/2 months I lived there, or to the 36 months total PPR I would get.

Many thanks.

james bartoli


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27th Sep 2008 16:58

Pete, here are more details.
Pete, if you are able to crunch the numbers on these details it would be incredibly helpful.Thanks.

Property bought in Oct '02 and sold in August '07
Capital gain after costs: £60,000
Period of ownership: 4 years 10 months
Period as PPR: 4 months 3 weeks
Total income for 07/08 tax year: @ £3,500. (This income is all interest on savings. I haven't added it up precisely yet, but it is roughly this, and definitely below the tax-free income allowance. All rental income from property ended in previous financial year, so there will be nothing to report this year.)

Once again, many thanks.

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By Anonymous
25th Sep 2008 10:16

Rest Easy
Rest easy Jane it is not a legal requirement to change your passport address it is for DVLA records, so you can answer the door if the bell goes. I agree, as I stated earlier, apply as if it was your PPR but be prepared to be questioned and have all the evidence handy and if the enquiry is on the phone then have a well formed and rounded reply ready, they may not follow it up. Regards Peter

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25th Sep 2008 09:19

Worth trying
I would not be as pessimistic as Pete. It seems every tax adviser has had different experience of what counts as acceptable in terms of time lived in a house before it is challenged.

BTL - well you may not have had any choice there; I have a friend who moved to a BTL as PPR divorce and it would have cost too much to get out of the BTL mortgage immediately. But no doubt it is now PPR.

Addresses - I've clearly failed in my legal duty over the years as I had no idea you had to tell the passport office! I would put more weight on council tax for which you should have registered as soon as you moved in.

Marketing for sale - if you moved back but immediately put it on the market I think this is very tricky. Not least as the rules on PPR contain a clause about acquiring PPR with view to making a gain.

Success may hinge on careful presentation of the facts and it might well be worth using specialist advice in preparing the return and then if there is an enquiry.

Above of course assumes there is a chargeable gain without PPR.

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By Anonymous
25th Sep 2008 08:23

Yes, I should have addressed the positive side. There was your Intent, but that, if questioned, will have to be defended by reports of your medical condition and proof of not being able to work. I assume it was the same condition that caused you to move back into your parents home, but again you will need documented evidence.
If HMRC dig there heals in they may address the issue that you did not change your home address of your passport and DVLA records that have a legal requirement to change the address. Did you inform HMRC of your change of address and were you reporting the rental income ? Lets have the figures and see what the potential cost could be. As I said before, it may pass through without question, but it would be fair to say that I have seen stronger cases fail under enquiry. Regards Peter

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24th Sep 2008 22:20

Thanks for your reply, Peter.
Although I knew I would not immediately be able to live in the house (and hence why I bought it using a btl mortgage), I did buy it for myself to live in in the future when that became possible. Therefore, the purpose of the purchase was to secure a property for myself to live in, even though at the time of purchase I was not able to start living in the house straight away. The fact that I ultimately only lived in the house for a short time was unforeseen and unintended originally. You are correct, though, that the btl mortgage was still in place when I lived there.

It was just over 2.5 months after the tenants had left before I put the house was on the market.

You are also correct that the other documents you mention were not addressed to the property. This was largely because I had moved from my parents' house (making it less critical to immediately redirect all post).

I would be interested to know if these comments would affect your assessment in any way.

Many thanks.

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By Anonymous
24th Sep 2008 18:32

Not quite that easy
On 'paper' there was no 'Intent' for it to be the OP's home as it was on a BTL mortgage, and I suspect he kept that running until it was sold. HMRC do not define the length of time that qualifies a property as their PPR, however the courts rules that it is the quality not the quantity and experience shown 9 to 12 months does not get questioned, were less that 6 months does. I also suspect that the property was on the market as soon at the last tentant moved out and the OP's HMRC tax return address was not this property and his passport, DVLA documents and Electoral address is not at this property. Assuming the rental income was reported to HMRC then the sale of same and the LR to HMRC electronic notice of disposal may cause them to ask questions. However I would declare it a PPR exempt in case it goes through but be prepared for an enquiry and a withdrawal of PPR status.
James you do not appear to have accounted for taper relief as this property was sold in Aug 07. If you provide all the dates at least MM/YYYY and figures then I will run them for you as a BTL sale and as your PPR which I have to say is on thin ice. I need your total taxable income including the rental income/profit and your tax code.

Letting relief, if any allowed is aportioned to the ownership period to actual PPR as the exemption period does not attract Letting relief.

Regards Peter

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24th Sep 2008 18:04

Could you clarify your comment, Simon?
Thanks for your response. I wonder if you could clarify your comment that PPR is a matter of fact? I thought the revenue sometimes challenged people over PPR- and because I didn't live in the house for all that long, I was concerned that I might be vulnerable to such a challenge and might have to prove that I lived there?

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24th Sep 2008 17:20

No problem
As you genuinely lived in the house you owned for 4.5 months, it was your principal (indeed, only) private residence and you are entitled to PPR relief on the gain apportioned to the last 36 months of your ownership of the house, which includes your 4.5 months of residence and the last 31.5 months of letting.

As you are entitled to PPR relief, you are also entitled to lettings relief on the gain apportioned to any other period during which it was let (the first 22 months) equal to the lesser of the PPR relief and £40,000. On a 22/36 split and a total gain of £60,000, no CGT is payable.

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By pawncob
24th Sep 2008 17:08

Just give me the Facts
PPR is a matter of fact. You don't need proof. You either lived there or you didn't.
Letting relief is available if the property was at any time your PPR.
The proportion available is the amount left after PPR relief with a maximum of £40,000 and a lower level of the PPR gain.
Looks like the gain is wholly exempt.

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