Capital gains on sale of rental property

vermas

I need some advice

i have the house i live in and a house on rent

i want something biggger and i have 2 options

1. sell both and buy something else- will i get capital gains tax at 40% on the profit on the sale of the rented one?
2. sell the one i live in (no tax?) and move into the rented one- extend it and live there for a few years and then move- i assume i would not have to pay capital gains here as i have lived there? or when i eventually sell it will i be subject to some CGT
any help appreciated

Greentea

You should check out re post this in the tax tread.

The last three years of the rented property are exempt from CGT only if you have lived there - the property must have been your main residece at some stage in those last 3 years before.

You are wrong to assume that you will be exempt from CGT if it becomes your only property. When you eventually sell, the CGT is apportioned depending on the length of time is was rented v. your main residence. The last three years are are again exempt if it has been your main residence. There are various reliefs which increase the longer you own the property.

The inland revenue has plenty of info on its web site: http://www.hmrc.gov.uk/cgt/

vermas

thanks for this- so if i live there for some of the time i donthave to pay ca[tal gains tax against all the profit

so how do i work out exactly how much i will pay if say i rent it out for 5 years and then live there for 3 years- is it just a linear proportion so if i make 100k then i pay capital gains for 3/8 of that amoint as that is how long i lived there assuming same gain each year?

LittleWoman_3

vermas wrote:

thanks for this- so if i live there for some of the time i donthave to pay ca[tal gains tax against all the profit

so how do i work out exactly how much i will pay if say i rent it out for 5 years and then live there for 3 years- is it just a linear proportion so if i make 100k then i pay capital gains for 3/8 of that amoint as that is how long i lived there assuming same gain each year?

Its a bit more complicated than that! On the example you give first you'd work out how much 2/8th of the profit would be. (3 year you lived there, 3 years of rental allowed, so only 2 not allowed). Then you may be entitled to taper relief, (indexing if you owned the property before taper relief started). You may also be entitled other reliefs, depending on the rules at the time of the sale.

The profit is after all the costs (Purhcase price, amount borrowed, Money improving the property, legal costs purchasing and selling, estate agent cost - these need to be deducted from the sale price when you first start working out the figures.) When you get to the end of course you get a Capital Gains Allowance which you deduct. The final balance is added to your income and you pay tax "on your highest rate" which could be 10%, 22% or 40% depending on your other income.

You can understand why a lot of people get an accountant to do it for them - the forms are just as bad. Of course if you get help, the fees are not allowable - so negotiate a fee if you decide to get help.
:eek:

Ivrytwr3

i have a rental property which was my main residence for 3 months (due to job moves i couoldn't reside in the property any longer). I intend to let the house for 5 years and sell. Is this a wise move for tax purposes?

When and how much will i be stung for CGT?

PS Sorry for jumping on your thread!

philproc

Don't forget you can use your CGT allowance of £8,500 and if you have a partner make sure you put the property in joint names so you can claim £17,000 tax free :T

HugoRune_2

there's a lot you can claim against CGT, there's your allowance for starters as mentioned, also any expenses relating to improving the property, any legal expenses, estate agents fees, there's also a taper system whereby you pay less of a percentage of the gain as each year goes by. I'd strongly advise getting an accountant, I thought I was facing an 8 grand bill when selling mine, they got the figure to zero, and they charged me 150 quid for the return. I dont know quite how they did it, but I was rather impressed as you can imagine

LittleWoman_3

Ivrytwr3 wrote:

i have a rental property which was my main residence for 3 months (due to job moves i couoldn't reside in the property any longer). I intend to let the house for 5 years and sell. Is this a wise move for tax purposes?

When and how much will i be stung for CGT?

As I said before its quite complicated - but ironically after going through "all the computations" and reliefs etc, unless the gain is substantial many people pay very little or anything.

At the moment I tell people they are safe to rent for up to 3 years, and they will not have to pay any CGT. There is no amount of time you have to live in it to qualify. Currently any tax due has to be paid by the 31 January, after the tax year when the liability arose. (In English - property sold during the 2005/2006 tax year, tax due must be paid by 31 January 2007. Thats currently the same deadline for submitting the forms etc., although there is a proposal to make it earlier!)

You mention you had to move because of your job - there is a provision for people who move because of their job, but live in rented, or employer supplied accommandation. (Armed forces is a good example) In these cases they are permitted one property classed as the main residence, even if its rented and they don't live in it.

the_reductionist

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At the moment I tell people they are safe to rent for up to 3 years, and they will not have to pay any CGT. There is no amount of time you have to live in it to qualify

.


Sorry I'm a bit confused by this - why does the sliding scale for taper relief start from year 1?

silvercar

I disagree, if you have never lived in a property as your principal private residence you do not get relief for the last three years of ownership.