Reader Q: Can I nominate my buy-to-let property as my principal residence to avoid tax?
I purchased a flat about 15 years ago and shortly after I became a caretaker and rented the flat to the council. I subsequently bought a house on a buy-to-let mortgage. I now wish to sell the house and nominate it as my residence or even move in for a short time, is this possible? I was required to live at a specified address as part of my duties.
Ordinarily if you were to sell a property any profit which you make is liable to Capital Gains Tax or CGT (currently at a rate of 18% for basic rate income tax payers - and 28% for higher rate income tax payers). However, you do not pay capital gains tax on the sale of your principal residence i.e. where you live – this is known as Private Residence Relief.
If you did then every time you moved home you’d be landed with a huge tax bill. Obviously, if you only own one house and live in it then this is your principal residence. But if someone has a second home or an investment property they can actually choose which is their principal residence and notify HMRC accordingly.
So in answer to your direct question, yes you could move into your buy-to-let house, even for a short time , and the last 36 months of ownership would be exempt from capital gains tax (CGT).
Full details of how can be found in the following HMRC factsheet which also covers how your flat may be treated for tax purposes should you decide to sell it.
Before you do anything I would suggest that speak to an accountant who can run over the figures as well as your circumstances/plans and look into the implications of changing your nominated residence, particularly on the potential tax liability if you decided to sell your flat. At the moment (assuming that your original flat is your nominated primary residence) part of your absence could be excluded from any potential CGT calculation due to you moving into job related accommodation.
I hope that helps
Money to the Masses
Looking for a financial adviser near you?
Do you need financial advice? An independent financial adviser can show you how to make the most of your money.
Simply find your nearest qualified and regulated adviser using the UK’s largest adviser search.