Question: We live in rented accommodation. My partner owns a house which is mortgaged and that is occupied by his former wife. We have bought a small cottage to renovate and sell. The mortgage is in our joint names. It is my only property but my partner still has the other house. If we sell the cottage will capital gains tax be payable?
© Malcolm Willett (www.willett-ink.co.uk)
Should I move in and, if so, for how long?
Answer: To qualify for exemption from capital gains tax a property has to be the owner’s “only or main residence”. This is essentially a two stage test:
1. Is it a “residence” of the owner - that is, does he live there?
2. If it is a residence, is it the owner’s “only or main” residence?
To gain the exemption both questions normally need to be answered “yes” although there are a few exceptions.
Currently your “residence” is your rented accommodation where you are living. Therefore, the cottage is not your residence, or if it is then it is not your only or main residence and so I would not expect the cottage to be eligible for exemption from capital gains tax.
If you move into the cottage and occupy it as your home, for the period of occupation and the following three years the cottage may be exempt. But any prior period of non-occupation will make at least part of any gain realised on sale vulnerable to a capital gains tax liability.
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Fiona is a partner in the property team at Thring Townsend Lee & Pembertons Solicitors www.ttuk.com.