CGT implications

Hi All,
My Friend bought a new house but due to some situation they are thinking delaying moving in and renting it out first but concerned about the CGT when selling . He doesn’t own any other house and bought this as a family home and intend to live in there for years to come. Currently they are renting .

Which would be an ideal option?

What would be the CGT impact between straight away renting out for 2 years and then move permanently or move in first for at least 6 months and then rent out for 2 years and then move permanently.

he said even if he moves in anytime before 6 years after initially renting out ( in his case in 2 years) he will not be liable for any CGT while selling.
Is that right?
Please share your views.
Thank you.

 

He'd be wrong.

If he's going to rent it out first, he can take full advantage of depreciation allowances until he moves in. It will be liable for CGT upon sale as a % of the time owned. It will also be reduced x 50% if he owns it for more than 12 months.

If he moves in initially & moves out again, he loses some of the depreciation benefits but gains the possibility of using the PPOR exemption for 6 years (assuming that he doesn't leave the country).

A chat to an accountant will sort it out beforehand.

 

John buys a property, rents it out initially for 2 years, then lives in it as ppor for the next 8.

Can John use third element costs incurred throughout the whole 8 years when it was ppor to increase the cost base in the calculation of 2/10 cg?

 

If he rents it out before moving in it will forever be subject to cgt. But the cgt could be nil depending on the circumstances

 

Ah yes, I forgot about Homer moving in before he passes away. All is forgiven.

 

I wasn’t thinking about that but yes that is true

 

I was thinking along these lines

Tax Tip 86: Don’t be so fearful of generating income from the main residence Tax Tip 86: Don’t be so fearful of generating income from the main residence

 

Thank you all. I gave him all this info and Terry’s links to read before he makes any decision.

 

Some benefits and issues with not making a property the main residence asap

+ Ability to use the prop-rata basis and never be forced to use s118.192 to reset the costbase. This can be a concern for a recently acquired property as the market value could be LESS than historical cost
+ Pro-rata means you can use third element costs FOREVER. These are non-deductible ownership costs in the life of the propertty. basically all ownership costs except those thata deduction is claimed if the property is rented
+ The % of time will dilute over time. eg Three months is 3/12 in a year and 3/120th in ten. and so on. THEN with the third element costs the profit subject to the small pro-rata will be even smaller.

- Record keeping. Those that know will keep these records.