Getting out of Capital Gains Tax

emily_birmingham

My boyfriend bought a house about 5 years ago, he lived in it for a while then went travelling and moved to a different part of the county (but never bought anywhere else). He has been renting out his property for a few years.
He now lives with me in my house and pays me rent, while still renting out his.

If we want to rent to house out for maybe 5 more years can we get out of paying CGT when we come to sell it?
If we moved into it for 6 months would that then discount us from paying it?

silvercar

Depends on your gain.

As he lived in it as his home, he will be exempt from CGT for the time it was his home and the last 3 years of ownership.

If he lived in it for a year, out of say 10 years ownership, he would be exempt from CGT on 1+3=4 out of 10 years gain, so 40% of the gain is not liable. Add to that letting relief worth upto £40,000 and his personal CGT allowance, currently £9,600 and you may find a lot of the gain is not liable.

Moving in only helps slightly as he already has the last 3 years exemption from his previous occupancy.

emily_birmingham

but if we moved back in for 6 months (after maybe 5 years of renting it out)would he not be able to prove he lived there - hence not have to pay any CGT?

CLAPTON

take the total period of owner in months

then take the period he actually lived there plus the last 36 months (3 years)

that proportion called PPR of the gain is exempt

if all the remaining was rented then he get rental relief which is the lesser
of

a. the proportion actually rented
b. the PPR amount
c £40,000


and he gets 9,600 CGT allowance

this probably means he will pay little or nothing

emily_birmingham

ok thanks for your help, it seems a shame he won't be able to get out of paying it completely, so unfair!!

dzug1

emily_birmingham wrote: »

ok thanks for your help, it seems a shame he won't be able to get out of paying it completely, so unfair!!

Why is it unfair?

emily_birmingham

We were sensible before we met and both worked very hard to save up and buy houses.
We are rewarded by just paying more tax!!
It's not as if we have a property empire.
I feel it's unfair on people that work hard and don't get to keep all the reward.

CLAPTON

two people have already explained that you probably won't have to pay tax in any event ... just work out the numbers.

In any event maybe if prices falls enough there may be no gain and hence no tax... that will of course be fairer to you but will you be more content?

emily_birmingham

We are hoping to keep hold of it till prices go back up - that it the plan, so we would make more.

Hopefully we will pay little or no CGT, but I still think it is not fair that he may have to pay anything when it is his only house whether he lives in it or not.