The ICAEW Blogs & Forums will no longer be updated with new posts. Your community announcements and articles will now be hosted on icaew.com under their respective community areas. This site and its contents will be closed and made available in an archive at the end of October.
In this scenario a property is purchased which is intended to be the new primary residence, however there is a delay in selling the existing primary residence and therefore the second property is rented out
After, say 2 years, the original property is sold and the second property ceases to be rented and becomes the primary residence.
Will the new primary residence be subject to CGT for the spell that it was rented out when it is eventually sold (in say 20 years time). If so for CGT purposes is the gain apportioned between the 2 year rental period (taxable) and the 20 year primary residence period (not taxable) ? Or should a valuation be obtained at the end of the 2 year rental period to establish the gain during that period ?
Can you choose which method to adopt ? Or is another method applicable ?
Off the top of my head ...
If the second property had not been rented out then it would be covered by the 12 months grace that HMRC allow for refurbishment of a dwelling intended for primary residency. This 1 year period may become two after the next budget (but might be back to one again, or abolished altogether, 20 years hence).
As it was rented out it may well be considered to be a business from the start, so this 1-2 years grace might not apply. However, under current rules you would receive letting relief which would mitigate the capital gain on eventual sale, and might well reduce it to zero. Sadly, it is very possible that the March budget will abolish letting relief, effectively backdating this to negate any relief accumulated to date.
For a principal private residence, valuations are only admitted under very restricted circumstances and I don't think that this is one of them. So proportional apportionment would be used at present, but the situation in 20 years time might be different.