Can I make a rental property my principal private residence to escape capital gains tax (CGT) under the principal prime residence rule? We bought the property for £48,000 in 1992, and its value is now about £380,000. We have never lived in the property – it has always been let.
To minimise the inheritance tax (IHT) liability, we are planning to sell the property and gift the proceeds to our daughters. I and my husband, who is 82, hold the property in joint names. If one of us dies within seven years of doing this, I assume it will be subject to both CGT and IHT. So would there be any advantage to changing the ownership basis to tenancy in common? JK
Chris Springett, tax partner at Evelyn Partners, says:
Private residence relief is an important but often misunderstood relief from CGT. The relief applies to an individual‘s “only or main residence”, but only to the extent that it has qualified as such throughout the individual's “period of ownership”. If the property has not been the only or main residence throughout, it is necessary to time-apportion the capital gain and apply private residence relief to the proportion of the period when the property did qualify.