Capital Gains Tax - Sell Now or Later?

Palu_2 · 7 May 2005 at 10:38AM

Apologies if this has already been covered. I have searched this section but not yet found the answer.

My wife and I let our main residence in 2003, having lived in the property for 3 years, and moved into our current house.

Our Buy To Let property has now been let for two years however we are considering selling the property this year to avoid any CGT. My current understanding is that no CGT is due if you sell a Buy To Let Property within 3 years provided it has been your main private residence for a period of time.(we lived there for 3 years)

We bought our first house for £125,000 (now the Buy to Let) and the house was valued at £150,000 at the time we bought our current house and let the first property. The Buy to Let is now worth approx. £175,000.

I understand that we could now sell our first property and our liability on the £50,000 would be zero.

However if we held on and sold after 3 years (assuming property prises reamined flat), on what proportion of the £50,000 would we be liable for CGT?

Would it be the full £50,000 or the gain from the time the property stopped being our main residence ie. the difference between £150k and £175k?

Any advise or useful websites with a CGT calculator would be much appreciated.

Thank you.

cash99 · 7 May 2005 at 7:52PM

Palu

The last 3 years of ownership are exempt from capital gains, regardless of what is happening to the property. In addition, as you lived there, you can claim up to £40k of lettings exemption. However the lettings exemption can not be more that the exempt gain. e.g. Say you sold after 15 years of ownership and made £250k, and assuming you own the property jointly at the time of sale.

Gain £250-125 = £125k ( split 50/50) £62.5K

Exempt gain (3yrs residence + last 3 yrs ownership) / 15 years = £25k

Lettings exemption £25k ( can't be more that the exempt gain)

Net gain each - £12.5k

After annual exemptions the taxable gain is probably very small or nil.

You are only likely to have a taxable gain if you hold the property for more that 12 years, and / or if the value rises in excess of £285k.

Hopefully from the above you can see that you are not in any immediate danger of a large tax bill.

Make your decision to sell based on the propertys investment potential, not your tax position.

When you do sell take professional advice on to calcualte your gain.

Palu_2 · 7 May 2005 at 9:24PM

cash99

Many thanks for your reply. Most helpful and certainly appears that we may not need to rush into a sale within the next 12 months.

I was totally unaware of the 'Lettings Exemption' and had not seen this in the IR leaflets so thank you for that.

Sorry, but I do have one additional question in regard to this as I have since done a search on 'Lettings Exemption' and found the following quote on about a similar situation ...

http://www.taxationweb.co.uk/forum/discuss.php?id=853

'The letting exemption applies as long as the house was your main residence for some time and the period it was let does not exceed half of the period of ownership. In addition, there is no need for the property to be occupied as the residence after the period of letting'

The quote was written by Demetris Savva BA FCCA
http://www.tax-accounting-london.info

Is this correct!! and if so does this mean that we would have to stop letting the property after 3 years anyway?

cash99 · 8 May 2005 at 10:10PM

Palu

I also saw the same comment, before my initial reply, it is slightly misworded.

The letting exemption cannot exceed the exempt gain therefore as the gain is apportioned on a straight line basis the letting exemption can never be more than 1/2 of the total gain. The letting exemption is not lost because you exceed this period of time.

This booklet from the IR may help.

http://www.hmrc.gov.uk/pdfs/ir87.pdf

Also you will have 6 years exemption, 3 years you lived there plus the last 3 years of ownership.

Note that the letting exemption does not apply if the house is not being let. Gaps between tenants are ok, provided the property is being offered for rent.

Palu_2 · 9 May 2005 at 10:12PM

cash 99

Thanks again for your reply. The information from the IR87 leaflet cetainly makes for interesting reading. If I'm honest, I'm still trying to get my head round all the different aspects but you have been most helpful. In particular the fact that we would benefit from upto £80k letting exemption (as the property is jointly owned) could prove very useful.

We will of course take on professional advise when we sell, but thanks once again for your input.

Regards

Palu

Capital Gains Tax - Sell Now or Later?

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