Capital Gains Tax - building cost or value?

Happy_saver_4

My OH built a new house and lived in it for a 6 months and tried to sell it. Due to the existing property market she has rented it out and moved into my home.

We understand that as she has lived in the property there will be no CGT to pay if the property is sold within 3 years. But if she retains the property longer then CGT will be due. Can anybody advise if the CGT is payable on an increased value over of what the property cost to build which is obviously lower than the value put on the property for selling when being marketed by the EAs.

If it is the selling value it may take years to reach the same sales value as in early 2008 and therefore could perhaps be rented out for many a year before the same sales value is reached again and CGT may become due.

What is the current CGT for a house sale; thankyou.

Ian_W

I'm not certain my opinion is right but you've had no replies so far so if nothing else this will give your post a bump up back on to page 1!

Logically*, as the tax concerns itself with capital GAINS it should be the build, land and associated costs (legals, EA's etc) she paid out to build the house as against the eventual selling price (less selling costs). The marketed price when she was trying to sell earlier would itself contain a gain (though this wouldn't have been liable to CGT) but as she didn't sell at that price - I think it is totally irrelevant.

Your OH has an annual CGT allowance, currently about £10K, which she can set against the gain and CGT is currently charged on the taxable gain at 18%.

I suggest you post on the "Cutting Tax" board or seek advice from an accountant.

* Logic is not always a good yardstick to judge tax issues or legislation in general.

00ec25

in this context, CGT is about realised gains not what it was worth in 2008, the gain is therefore on the actual selling price she gets from her purchasers less the actual cost she paid her builder (both less fees etc)

you are correct re 3 years, she must be prepared to prove her residence with documentary evidence however to be on the safe side

there is only one rate for CGT, 18%, irrespective of you selling a house or a grand master painting

as its her ex home and is now rented out, you should read up on lettings relief for CGT as that will reduce the value of the gain a bit (pro rata and also capped at £40k) if you sell after 3 years

Happy_saver_4

Thanks guys for your response. I think it's best, as you suggest, we'll make an appointment with an accountant. Cheers