Capital Gains Tax - I don't understand

[WinkyWinkola]

Perhaps I am a chump but can someone explain it to me, please?

We live in an Edwardian semi. We have pp to build a replica of our house on our drive next door. We would like to sell that house but we realise we'd have to give a lot in tax.

DH wants to move into the new house and live there instead of this older one we're in now and sell this older one. Wouldn't this one be subject to CTG as well as it's still a second home?

I don't really want to move into the new house as it won't have as much storage as this one - no cellar, no loft space. Gah.

In non-jargon terms, you don't pay tax on a house you're living in when you sell it, but you can only have one house like this at a time.

So if you're living in the Edwardian semi, when you sell it, no tax. As you're not currently living in the new house, you'll have to pay tax on it if you sell it.

In the past (ie the 80s) I've known people move into a house they have built/renovated for long enough to be classed as "living in it" before selling it and moving back, but I don't know if the rules have changed.

for any house that has ever been classed as your principal private residence (ppr) the last 36 months of ownership are exempt from capital gains regardless as whether you are living in the property for that period.

So you could move into the new house, and sell the old one within 3 years of the move without any CGT.

As you are then living in the new house it becomes your ppr and is exempt from CGT.

If you want to do it the other way round (keep the old house, sell the new one) then it would probably be worthwhile living in the new one for a while (but you actually do have to live in it - not just say you are) for a period in order for the new house to be your ppr, then sell the new house utilising the ppr exemption and move back into the old house.

You would have a period (say 1 year?) on the old house when it doesn't have the ppr exemption, so when yopu eventually come to sell you would be potentially liable to tax - but the amounts should be fairly small.

ie: owned house for 20 years, lived in it for 19
Gain, say £200,000
taxable gain - £200,000 x 1/20 = £10,000 which would be covered by your annual exemptions.

In addition, if you rented out the old house for the year you lived in the new one then you would further qualify for lettings relief to offset any potential tax for that 1 years period AND you give more credence to the fact that you actually are living in the new house.

Thank you very much for the clear explanations. Much appreciated.