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Accidental landlords renting out their former home – that they could not sell – may find they have much to be thankful for when the property market finally recovers.

Unlike buy-to-let landlords who are selling investment properties, those selling their former primary residence will have a built-in advantage in reducing their capital gains tax bill – assuming the market rises and there is a gain at all, of course.

There is no tax to pay when selling your main home, but a little-known quirk in the rules means that even if you move out you continue to get relief against capital gains tax for another three years. And you can get a further £40,000 in private lettings relief, which applies only when letting your former home.

Camilla Dallerup, star of BBC1′s Strictly Come Dancing, sees this as an opportunity for the future. Last year she started thinking about upgrading from her one-bedroom flat in Walton-on-Thames in Surrey to a larger home but as the recession deepened she was reluctant to sell and thought about letting instead.

‘Had it not been for the way values have fallen I might have sold this flat to buy my next place without stopping to consider,’ says Camilla, 35. ‘But I didn’t want to accept a low price, so I talked to my accountant and he helped me realise that I might be missing a really good opportunity.’

How lettings and principal private residence relief on buy-to-let works

As an example of how capital gains tax relief might work, if Camilla moved out of her flat this year and sold it for £330,000 in eight years’ time, the tax man would apportion the gain as £10,000 for each year since she bought it for £230,000 in 2007.

Camilla would get £20,000 relief for the two years she lived there and another three years, or £30,000, on top thanks to the way Revenue & Customs calculates principal private residence relief when it comes to the sale of a former main home.

Then there’s the private lettings relief, calculated as either the same amount of private residence relief already given (£50,000) or £40,000, whichever is lower. With her additional £40,000, Camilla will be exempted from paying tax on £90,000 of her gains.

But she gets an annual exemption as well (currently £10,100), so in this scenario Camilla would have a total £100,100 relief and would not have to pay any capital gains tax at all.

If her buy-to-let house increased by the same amount and she sold it, she would have to pay 18% capital gains tax from the proceeds, or £18,000.

Camilla already owns a two-bedroom house in Reading, Berkshire, which she bought as an investment in 2007 for £195,000 and lets out.

‘When I sell the Reading house I may have to pay a lot of tax on the rise in value because I have never lived there,’ says Camilla. ‘But if I live in my properties first, no matter how much the value increases, I will pay less tax when I come to sell.’

Camilla’s model good looks and high passion for dancing don’t give the impression that she would be so quick to grasp the intricacies of property tax. But in her home country of Denmark, she took a four-year business course after school, followed by a two-year apprenticeship as an estate agent before coming to Britain in 1996.

Camilla bought her Walton flat for £230,000 in late 2007, two years after splitting with her former fiance and dance partner Brendan Cole following his close friendship with Natasha Kaplinsky while the pair were filming Strictly Come Dancing.

She met her current boyfriend, former Hollyoaks actor Kevin Sacre, when filming a show for Living TV about training rescue dogs.

Kevin has a flat in Liverpool, but often visits Camilla with his dog, Sven, which he adopted from the show. It was having the dog in the flat that made Camilla think about moving to a home with a garden.

‘I could sell this flat and stretch my finances to buy a house,’ she says, ‘but if I buy a cheaper garden flat first and stay there a few years before letting it, I can add it to my portfolio and look for a house later. I think that makes more sense from a tax point of view.’

The same level of tax relief that Camilla is set to enjoy on her flat is also available to anyone who owns a second home when they sell it, as long as they have genuinely lived there.

‘People don’t realise the advantages that a period of living in a home you later sell can bring,’ says Mike Warburton, a tax adviser at the Bristol offices of Grant Thornton accountants. He frequently encounters-canny landlords with second homes who want to elect them as their main residence.

‘You have to be careful about trying to achieve this retrospectively,’ says Warburton. ‘This has to be real, it can’t be faked. By far the best way is to do what Camilla is planning to do because there are huge advantages to living in a home before letting it.’

Source: www.thisismoney.co.uk