gryffron wrote:1) Depends how you look at it.
Yes, indeed. What I used to do was, from time to time, consider the net realisable value of a property (after CGT) and relate the 'net profit' derived from rental income to that sum of cash-in-hand. I'd then consider what other investment opportunities were available for that same sum of net cash together with the nature and level of returns on each.
Other factors influencing a sell/retain (or mortgage) decision would include whether I was happy to have whatever proportion of my net worth that sum of cash represented invested in property, in residential property, in London residential property and, especially, in a single London residential property. Property tends to be a chunky investment: unless mortgaging to realise some cash it's pretty much 'all or nothing' as disposing of part of a property is rare. I wouldn't want to be in the position of needing to liquidate a property asset but being forced to sell my only letting asset when the market might be against me. I'd also bear in mind that a void of one month wipes out 100% of my rental income for the month if my let-property portfolio value were tied up in just one flat
Taking a punt on future value of a specific property is inherently risky. Some people have been known to sell-up in anticipation of a property price crash but found that events didn't pan out as they'd expected. Others have held on in the hope of continuing (unrealised) gains but then experienced a falling market.
The immediate effect on the IHT position of one's estate is mainly that the value being in the property means that the full amount is brought into the computation whereas having disposed of it means that CGT will have been assessed (subject to CGT reliefs and rates) so only the net realised value is in the estate (subject to IHT reliefs and rate). If the value is in the property then this may have an effect on when some IHT is payable.
If a property has at some time been one's
residence this does not simply exempt the disposal from CGT in its entirety: as has been indicated pretty clearly, it can get a bit complicated and the rules have changed a bit over time (more so if your colleague is not tax-resident in the UK) so don't rely on simple web-searches which may turn up superseded info. A major complication could include whether HMRC accepts that the property properly qualified as one's principal private residence - that's not based solely on objective criteria so there are circumstances such that you only find out when HMRC takes a view
after the disposal. They'll receive PPR nominations and so on without comment as there's no need for them to form a view until a taxable event such as a disposal has occurred. Good records that can support one's claim (with no loose ends lying around to undermine them) are worth maintaining.
Claims that a taxpayer had taken up residence a relatively short period before putting the property on the market have been tested and have failed in court as 'occupying as a residence' is regarded as requiring a degree of permanence and the view was taken that there was clearly insufficient intent to form a long-term residence in that case. Although
Goodwin confirmed the principle in a case involving extreme circumstances, it has since been applied in less obviously outrageous circumstances such as, for example,
Moore - where the taxpayer didn't get his ducks in a row and also shot himself in the foot. PPR claims look to be a high-reward target for HMRC so we might expect increasing levels of resistance to them in non-mundane circumstances.
It strikes me that professional advice on the current state of play would be worthwhile for your colleague. Investigating the tax position only after the event is dumb whereas time and money spent on reconnaissance is never wasted.
Cheers!