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As newlyweds, what capital gains tax will we pay if we sell one of our flats?

Virginia Wallis
A newlywed couple need advice on property taxes. Photograph: Peter Nicholls/Reuters

Q I recently got married and we each own a flat. I was told by a friend that if we wanted to avoid capital gains tax (CGT) we would have to sell one of the flats in the first three years of getting hitched. I am thinking of selling my flat to buy a house but since we would still have his flat, would we have to pay second home stamp duty or does that come under the same three-year allowance?

Would we be better off selling both flats within the first three years and buying one together to avoid these massive tax penalties? Some sage advice would be most welcome as the extra 3% stamp duty would definitely have an impact on our search parameters. RR

A The three-year rule that your friend mentioned is now the 18-month rule and has nothing to do with the higher rate of stamp duty on second homes. The 18-month rule is part of the “private residence relief” provisions that make the gain on a property you have called home – ie your main residence – free of CGT. To benefit from the tax-free gain you have to sell within 18 months of moving out. However, it is still the three-year rule if you only own one home and are disabled or move into long-term residential care.

If your flats were both your main residences before you moved in together, once you are married, only one of them is eligible for private residence relief. However, provided you live in them both, you can decide which of the two properties should get the relief and it doesn’t have to be the one that you live in most of the time.

You have two years from the date of your marriage (or civil partnership) to nominate by writing to HM Revenue & Customs, giving the address of the property that you wish to be treated as your main home for CGT purposes. However, you can’t nominate a property that is let out.

You also have two years in which to make a nomination each time a combination of homes changes. So, for example, if you sold your flat and bought a house, you’d have two years from the date of purchase in which to nominate the house or your husband’s flat as your main home.

If you don’t nominate a home the facts decide which property is treated as your main home when you come to sell. The facts also decide which property is your main home as far as the higher rate of stamp duty is concerned. If you sell the home you are living in and buy another home to live in, you won’t have to pay the higher rate, which is the standard stamp duty rate plus 3%.

If, however, you bought a holiday home or property to let out, you would have to pay the higher tax rate. This would also be the case if you bought a new home but didn’t sell the old one straight away. However, provided the old home was sold within three years of buying the new one, a refund of the extra 3% would be available.