Can anyone explain Capital Gains to me?

[crossandcrosser]

We currently own 2 houses. We live in one and are renovating the other with a view to moving in in the next couple of months.
The EA is coming to value to house we live in with a view to selling in the Spring. I explained that I don't want it languishing on the market for months over the winter so would prefer to wait until the Spring.
He suggested renting it out for 6 months but I presumed we'd be liable for CG. He wondered if we keep our existing property as our main residence we wouldn't be liable. Any ideas?

As I understand it you'd only be liable for CG tax on any increase in value during the period in which you rent it out.

You can't keep your existing property as your main residence if you rent it out. You can only assign somewhere if you live in two homes.

Are you married? A married couple can only have one main residence (i.e. exempt), an unmarried couple can have one each.

Have you nominated one residence (via a letter to HMRC) as your main residence?

I believe a short period of renting it out won't affect your capital gains - check HMRC website for details. I think there is some deal where if you have ever lived in the property, you are entitled to 3 years exemption (i.e. you could rent it for up to 3 years) and still be free of capital gains.

Even if CG is due on property, it's only for the period that the property wasn't exempt. So if you owned the property for 10 years and it was exempt for 7 of those years, and sold it at a £100k profit, then you would be liable for CG on £30k of the profit.

Principle private residence exemption for capital gains tax also allows a period after you move out to count so you wouldn't be liable to cgt if you sold it six months after moving out.

Thanks so much for the responses, they're really helpful.
Yes, we're married.
We haven't nominated any property with HMRC, should we have? We will when we move.
Would the fact we've owned the other house (the one that we're moving into) for 2 years have baring? It was council tax exempt for the 1st 12 months as was uninhabitable.

It only has a bearing in that you can't have them both as your principal residence at the same time.

Read the HMRC website, it is pretty clear.

Your current property is fine if you manage to sell it in 6 months time. It's currently your principal private residence (PPR) and the relief will also be available 18 months counted backwards from the point of sale, regardless of where you were living at the time. So if you manage to sell the house within 18 months of moving out, and you lived in the property from the start of your ownership then no CGT should be due.

The second property is trickier since it's taken you over two years to move in. It may mean that the gain applicable to that part of the ownership will be taxable. There are certain reliefs applicable, however, so it may be worth taking advice when you come to sell the second property. Also, if you have no plans to sell it in the near future then it doesn't really matter about the CGT position of the second property. The law may change before you come to sell.

Thanks roksti, I understand better now. Hopefully we'll sell this one within the 18 months. fingers crossed.