Tax on selling rental house

terryw

Tate65 wrote: »

Thanks for that, Terry!

A couple of questions, though: What's PPR, and do you know what would the tax rate be?

Oops sorry....missed out

PPR is principal private residence

terryw

silvercar

Tate65 wrote: »

I'm not at all sure about the tax implications of selling a house that we used to live in but have been renting out for the last year and a bit, so hoped somebody could help.

Using simple(ish) numbers - if we lived in the house for 5 years, rented it out for 1 year then sold my understanding is that there's no tax payable on the increase in the value of the house, as you can add a couple of years on to the time you lived there as a tax-free period.

But, if we kept it for another 4 years then sold - so we'd lived there for 5 years and rented it out for 5 years - what sort of level of tax could we expect to pay? Some of the increase in value would, I believe, be taxable - so how much and at what level of tax?

You are exempt from CGT for the time it was your home and the last 3 years of ownership. So if the rental period was totally contained within the last 3 years, there would be no tax to pay.

If you owned it for 8 years and had rented it out (early on) for one year, you would be liable for tax on one-eighth of the gain less buying, selling and improvement costs. If you owned it for 20 years and had rented it out for 2 years (not in the last 3 years of ownership) you would be liable for tax on two-twentieths = one- tenth of the gain.

You also get letting relief, worth a maximum of £40,000. This is restricted to the minimum of the amount of relief you get for the time it was your home, the gain while it was let and £40,000.

From this liability you take off your CGT allowance of £9,600 per person, so joint owners get £9,600 each.

Anything remaining would be taxed at 18%.

Tate65

Thanks everyone - that's been very helpful!

Hopon - ah, that was it then. I'd previously read up on this but then heard them doing something in the budget that I wasn't sure how it would affect things, and I think that was the taper relief being removed. If it's just that then it's not so bad (in our situation) as the other reliefs cover us. So long as they don't remove them too at some point!

One other question out of interest, in case any of you know - if the CGT relief is £9.6k per person, do both people need to have owned the house from the start?

I just ask as the house was my wife's and is still just in her name. If we did end up keeping it for the long term and found that we were heading into CGT when we sold, would it be possible to move it into both of our names so my CGT allowance could also be utilised? Or would this be a complicated change of ownership thing?

silvercar

would it be possible to move it into both of our names so my CGT allowance could also be utilised?

Yes. But make sure your solicitor understands that you want to transfer half before sale and not just receive half the sale proceeds.

Or would this be a complicated change of ownership thing?

It is a change of ownership, but it is not complicated. As you are married there is no CGT to pay on transfer and you are deemed to have acquired your share at the price and time your wife bought the property.

One other question out of interest, in case any of you know - if the CGT relief is £9.6k per person, do both people need to have owned the house from the start?

No. I presume you have also been living in the property as your PPR. If you have not lived in the property, you would not get PPR relief and the last 3 years, nor would you get letting relief.

Tate65

silvercar wrote: »

No. I presume you have also been living in the property as your PPR. If you have not lived in the property, you would not get PPR relief and the last 3 years, nor would you get letting relief.

Not sure I fully understand what you mean there. My wife bought the house before I met her then I moved in to hers, having sold mine, for about 18 months before we bought our current house and rented hers out.

So she'd lived there as her main residence from when she bought it until she rented it out, so I assume she'd get the PPR relief and letting relief.

Would moving it into joint names affect those reliefs, if I'd not lived there from the start?

silvercar

Would moving it into joint names affect those reliefs, if I'd not lived there from the start?

When you transfer between spouses the date and value are assumed to be that when the original owner bought. The eligibility for PPR and last 3 years concession and letting relief require you to have lived there as your PPR.

So if you had never actually lived in the property and your wife transferred half to you before sale, you would not be eligible to letting relief. As you have lived there you will get letting relief and PPR for the time it was your home and the last 3 years of ownership.

The problem arises when someone transfers half of what was their home to their new spouse when the new spouse has never lived there. They transfer with the intention of gaining another £9,600 CGT allowance and forget that they lose PPR relief and letting relief and so end up with a greater tax bill.

vaio

I’m sure it hardly needs saying and I’m sure all the posters are absolutely right and giving you good advice but as there could be significant sums of money involved I think I’d be tempted to get it confirmed by someone professional before you act on it.