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When primary residence becomes secondary residence, what happens to capital gains tax?

Posted 2 February 2015 under Tax Q&A


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I bought my flat 7 years ago for R1 million, and it's probably worth R2. 5 million now. It's been my primary residence up till now, so I know I won't pay capital gains tax on it if I sell it right now. But what happens if I instead buy a new house to live in, and keep my flat to rent out (so it becomes my secondary residence)? Say I sell the flat in 3 years for R3. 5 million. Would the capital gains tax be calculated by subtracting R1 million from R3. 5 million to get R2. 5 million, even though for 7 or the 10 years I owned it it was my primary residence?

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TaxTim TaxTim says:
3 February 2015 at 7:04

You would apportion the gain between the period you used the residence for your home and the rental period. The 2.5m will be apportioned between 7 and 3 years and the primary exclusion would apply to the R1.75m of the primary residence portion.

Chris says:
3 February 2015 at 8:19

Thank you!! So is it just as if I have two flats, one of 70% of the value which is my residence, and the other of 30% of the value which isn't?

So is it exactly the same calculation if instead for ten years I use 30% of my floor space for my business?

Chris says:
4 February 2015 at 11:33

Yes -- I mean, conceptually is it as if my one flat (value R2.5m) is divided into two separate assets, one of value 70% R2.5m and the other of value 30% R2.5m, and only the first one is my primary residence? And would this also be the case if the flat (value R2.5m) was my primary residence for 10 years but 30% of its floor space was used for my work?

TaxTim TaxTim says:
5 February 2015 at 8:30

It theory yes, you would apply the same logic to the property. You would always pay full CGT on the part of the house not used for primary residence purposes.


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