Capital gains tax

[Misty9]

We are in the process of trying to sell the house DH bought with his ex (bought her out years ago) which is now rented out and has been for a few years. Two questions we have on CGT:

1. It is dh's only house (we rent) and it is being sold to fund the purchase of our family home. Does CGT still apply??
   

1. If so, can anyone help us figure out what the figure might be?
   

He bought it for £69,950 in March 2002 and lived in it until April 2007 when it was rented out through an agent until Jan 2011. Since then, his brother has lived in it as a private tenant (with his friend). It is now valued at around £118,000 (but we're really struggling to sell it thus far).

Is there anything else you'd need to know?

There's about £20k in equity in the property and we're trying to establish whether it's worth actually selling especially for some silly price to a BTL investor or releasing the equity and saving more money for our own deposit.

[nocake]

If you're renting it out then I'm fairly sure CGT will apply, but if you call the tax office they'll be able to confirm it.

How much you pay will depend on what you paid for it and what you sell it for, the difference being the "capital gain". However, I think you also get relief from the tax during the period it was his main residence. Again, the tax office should be able to give you the information you need.

[lalalonglegs]

Theoretically it applies but as it was his principle residence before it was rented he will get allowances. The last three years of the let are exempted so if he had moved out less than three years ago there will be nothing to pay. However, further to that, he will have a £40000 letting allowance to set against any profit plus his c. £11000 annual CGT allowance. So if he bought for £70000 in 2002 and it is now worth £118000 that's a 48000 uplift (minus all buying and selling costs which will knock a few thousand off) which will be cancelled out by letting and CGT allowances.

HTH.

[Misty9]

Thanks, that's excellent news! What is this letting allowance? Neither of us have heard of that..

[lalalonglegs]

It's a tax allowance, all completely bona fide. Google it, it's very handy.

[Misty9]

Thanks again. Just did the figures, and for anyone finding this in the future, these are ours:

£48,000 potential gain.
Owned property for 11 years, can claim PR relief for 8 of those (lived 5 plus 3 at end) = £36,500 tax-free, leaving £11,500 capital gain.

Lower of PR relief, taxable gain, or £40,000 is applied as lettings relief - so taxable gain in this case at £11,500. Effectively wipes out CGT (and not far off CGT annual allowance anyway) . Happy days

I hope I've understood that correctly...feel free to correct me if more knowledgeable!

[Gregssausageroll]

You are right!

[Gregssausageroll]

But you still need to declare it so make sure you get the right pages.

[specialsubject]

I think you are right - this seems to be the link:

www.hmrc.gov.uk/cgt/property/sell-own-home.htm

these rules change regularly so keep an eye on it. Or move back into it for a while, it then becomes your main home and there's nothing to pay.

[FlowersBlown]

Can I ask about our situation here? It's complicated and I have no idea what the implications are for capital gains.

I bought a house 14 years ago to live in with my parents, as they were too old to get another mortgage and were in financial difficulties. We all lived there together for 7 years, all paying into the mortgage, although the house has only ever been in my name. In that 7 years we completely cleared the mortgage as we were all working and my parent's financial situation improved. I then moved out and bought another property to live in on my own.

My parents paid me an amount in rent for about 5 years, then stopped. I didn't want the money, and in fact it has still never been touched. My mother now lives there alone and is quite elderly so I am thinking about what might happen when I need to sell. Does anyone know what my liability might be? The house has gained in value by about £100,000.

[lalalonglegs]

You'd be the same as anyone else renting out a house which had been their principle residence at some point. You would pay tax on a pro rata basis on the years that the house had been unoccupied by yourself (so 100k increase over 14 years would make you liable to pay tax on 50k of the profit as you have not lived their for seven years) but you would get letting relief of 40,000 plus CGT allowance of about 11,000 wiping out the amount on which you were liable to pay tax. It doesn't matter to the treasury who lives there or how much rent they pay once it stops being your own home.

[FlowersBlown]

Thanks so much lalalonglegs. I was worried about being liable for a late sum. That's brilliant!

[specialsubject]

IF the rules don't change! (there used to be a lot more relief on this and it has been removed over the last few years)

if they do, you would need to move back in for a while. The length of a 'while' has never been defined - I went to a property seminar which included a discussion on this. The feeling is that a few months of actually living there, name on electoral roll and council tax, paying bills, getting post sent there etc would mean it was your principal residence and so exempt.

I can't see the own home exemption ever being removed, it would be suicide for any government.

[tomverlaine]

Can I ask another question - if you don't own another property, would a flat you let out be your PPR? eg if you were a tenant elsewhere?

[lalalonglegs]

No, you have to have lived there yourself.

[Misty9]

Just coming back to this to correct my calculations..

We've sold and now I've looked into it properly, I realise I used the wrong calculation for our case:

Capital gain: 48,000
PR relief = 8yrs x 48 / 11 (total yrs owned) = 34,909, leaving taxable gain of 13,091
Lettings relief is applied as lower of: PR relief, 40,000 or (and this is what I got wrong previously) the gain arising from letting, so 6yrs x 48 / 11 = 26,181

We still aren't liable for CGT as this last figure cancels out the taxable gain, but I wanted to correct the figures for future readers :)

One question though: dh is self employed and as such completes a self assessment. Obviously he needs to declare this gain, but will it be taxed as income?? Or is it exempt due to CGT (but not liable for that anyway)... Confusing!

[lalalonglegs]

I'm pretty sure that you get lettings relief on top of the other reliefs (our accountant let us have it and it was all waved through by HMRC...). I'm glad you don't have anything to pay though.

There is a section in the self-assessment form for capital gains which you can put all the calculations in and you won't be taxed if your calcs are right.

[morethanmama]

Can someone help me work out my situation?

Bought in 2001 for 130k
Sold this week for 250k

Remortgaged and released equity in 2008 in case that matters.

Lived in property as sole residence 2001-2008

Tenanted 2008 till 2013.

Am guessing that I get to 2011 as my three free years but can't work out how my gain for the last 2 years will be calculated.

Many thanks

[morethanmama]

Oh, and I have just sold for less than it was worth in 2007!

[lalalonglegs]

It's calculated as 120k (the profit) divided by 12 (the number of years you owned it. You lived there for 7/12 of that time and then another 3 years are allowed so 10/12 years will be tax free:

120k/12 = 10k
10k x 10 years = 100k tax free

Therefore your taxable profit is 20k.

20k - CGT allowance (10,900) = 9,100

Therefore, at worst you will have to pay tax on 9,100 but I contend that you get an additional 40k allowance. Even if you don't, by the time you factor in solicitor's fees, estate agency commission etc, the amount payable will be tiny.

If you co-own the property with, say, your husband, he will also get CGT allowance and the entire profit will be protected.

[morethanmama]

Thank you so much that is really really helpful.

[Misty9]

morethan your situation is similar to ours, so you're also entitled to lettings relief, which is lowest of PR relief (100k for you), 40,000 or gain due to letting (in your case that's 5x120/12 = 50)

So for you, lettings relief is 40,000 - exactly as lala said. Which cancels out your taxable gain, thus no CGT applicable