Rented House CGT

Aunt_Gladys

My wife bought a house in December 1989 for £90K which now has a £47.5K mortgage on it. She lived in it until July 1995, when we began co-habiting in my house and rented her house. Her tax return shows an annual loss on the rental income. In August 2006 the house will be sold for £165K and the equity invested in a holiday home in Turkey. How can she minimise the amount of Capital Gains she has to pay on the sale of her house please?

silvercar

If you have lieved in a property you can claim exemption from CGT for the last 3 years. So you have exemption from the time she lived in it - 4.5 years + 3 year = 7.5 years out of 16.5 years about 15/33 of the profit. there is also something called indexation and tapering relief which reduces the gain by about 5% for each year over 2 I think that you own it. Add to that the capital gains exemption of £8,800 (approx) each year and its starts to shrink.

If you got married and she gifted you half the property you would each have an exemption of £8,800 I think.

cash99

You would be entitled to (5.5+3)/16.5 reduction for PPR relief, plus lettings relief of up to 40K.

Based on the figures you gave:


Gain - exlcuding allowance for buying and selling costs 75K

Less PPR exemption 8.5/16.5 x 75K = £38k ( approx)

Less lettings relief = £37k (lower of £40k, PPR exemption or gain after PPR exemption)

Therefore net gain = 0

Aunt_Gladys

Hey guys thanks a bunch, I had been to see an accountant and basically been told 10% of the sale price as a guide. I have also been in contact with Tony Tescuiba (Martin's Uncle - advertised) and he has been a fantastic help as well. Really on the ball, knowledgable and ready to help.

Ivrytwr3

Tony Tescuiba - how did you get in touch with him?

Ian_W

There's a factsheet from the Revenue, quite easy reading, that sets out residential & letting reliefs below:
http://www.hmrc.gov.uk/pdfs/2003_04/capital_gains/ir283.pdf

Although she makes a loss it should be reported with the tax return for the year in which it occurs. HTH.