Captial Gains & House - Help Please

mrlossyman

Hi,

I own a house in Swansea which I lived in for two years and then rented the property out when I moved jobs (relocated to Surrey). The property has been rented for two years making 4 years in total (the property is still being rented).

I have rented in Surrey for the last two years and I am in the process of buying a second house with my Girlfriend. I would like to keep my existing house in Swansea until the early redemption period finishes on my mortgage. Then I would like to sell the property and pay off some of my new mortgage.

I would like to know if I will have to pay capital gains tax on any profit from the sale. This is likely to be around £70,000. If the profit is used to pay off my current mortgage will I be exempt? Should I sell my house next year and not allow it to be rented for over three years, this way I could prove I lived in the proprty in the last three years?

I am a bit lost what to do and any advise would be appreciated.

To sumarise

Owned rented house for 4 years Lived in it for first 2 years Buying a new house in joint names Want to keep rented house for further two years Don't want to pay any Tax!

Thanks

Ian_W

Hi mrlossy,
I think you should be pretty much OK with what you're doing. What you use the money for [paying off your mortgage] is irrelevant but the period you lived in the property, 2yrs and the final 3 yrs [provided it has at sometime been your principal residence] are exempt for cgt. There is an IR HELPSHEET and if you look under PERIOD OF OWNERSHIP it says:
The final 36 months of your period of ownership
always qualify for relief, regardless of how you use the property in
that time, as long as the dwelling-house has been your only or
main residence at some point.
So, in theory, 5/6ths of your gain will be discounted but having qualified fro residential relief you can get letting relief [also covered in the helpsheet] of the same amount up to £40K max, you'll have taper relief and your personal CGT allowance [currently £8.5K] so I doubt very much you'll pay any tax but you should report it with your tax return.
It's complicated so may be worthwhile seeing an accountant.

HTH.

mrlossyman

That's good news! I was worried I'd be taken for 40%!