Capital Gains Tax when you buy new property before selling main residence

[TheHomeEdit]

I’m hoping someone can point me in the right direction to find the information I need.

At the end of last year I helped my mother buy a flat so that modernisation and adaptations could be done and the move be as easy as possible for her. Once she was settled in the new flat we began marketing her home which she had lived in for more than 35 years. If the sale proceeds smoothly I think the overlap of her owning two homes will be about a year. The family home was empty once she moved to the new flat.

When we first decided to go via this route I’m sure I found a document about sliding scales for Capital Gains Tax dependent on how long the overlap was but now can’t find anything. I know there was a grace period when you could own two properties and avoid all CGT and then a sliding scale but I can’t find anything now. Does anyone know what the rules are?

TIA

I don't know about CGT but I think she'll pay a massive rate of Stamp Duty.

You get 9 months after she moved out tax free. You work out how many months she’s lived there and add 9, then divide that by how many months she owned it to get a percentage. Deduct that from 100%.

Then you look at what you sold it for and take away what she bought it for, times it by the percentage above and it that’s bigger then £6k you pay 28% on the excess. You need to report and pay this within 60 days of the sale.

You’ll also get a refund of the stamp duty surcharge you paid on the second home, so make sure you claim that.

If the price has gone down since she moved out and selling it, there will be no CGT to pay.

Ok I have my doubts about all of the above. You need to ask an accountant.
My understanding is while you may have paid higher stamp duty on the purchase of her second home, it is refundable if she sells her other home (as both were/are her main residence).
As for CGT, the rate is 18% for those on a basic tax rate. But, rather than the complicated formula mentioned above, I think there is an allowance of time, especially as she didn't let the house out when she moved. There are often cases of people buying their next home before selling their old home.
But rather than relying on inexpert advice here, please ask an accountant - the solicitor handling her sale may also know.

Thanks for the help. We can definitely reclaim the excess stamp duty and the solicitor will do that.

Solicitor said she didn’t do the capital gains and if I couldn’t do it myself would need an accountant. The way it was worded made me think it probably is a straight forward calculation but think we will need to talk to an accountant.

Completely wrong - ignore.

Essentially, if she owned both properties for 12 mth, then 3 months is chargeable. Watch our for precise dates though. Take those 3mth as a proportion of her entire ownership period of the house i.e. 3 out of 420 months, and multiply by the increase in value (less sale costs) since she bought it in the 1980s. If the result is more than her £6000 annual exemption then the excess will attract tax. This is 18% within the basic rate bracket or 28% above that level.
residential property CGT has to be reported and paid within 60 days of completion of the sale

Would be worth looking over the Private Residence Relief - since overlap was for modernisations to make it liveable you might be entitled to full relief? See example 6

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2023

The formula I shared is how the allowance of time works.

But if OP is struggling, I would suggest paying for proper advice from an accountant (which I am, and this is what I do, but I don’t provide advice that can be relied upon on internet forums).