Capital Gains on Selling previously rented property

archieboy

My husband and I bought and moved into a bigger house one year ago. Because the market was bad we decided to rent out our original house. We lived in this house for 7 years before renting out. We are now wondering what happens re capital gains tax when we decide to sell. Is it better to sell within a fairly short period of time as there probably wouldn't be such a difference in price between the original buying price and the selling price. Are there allowances we can claim against CGT? We aren't really wanting to sell just now as we have a good tenant and are happy for the house to hopefully increase in value, we are just worried about how much we will have to pay in CGT when we do come to sell and would appreciate some advice.

Pumpkinface_2

As the house has been your main residence at some point, the last three years of ownership will be treaed as if you were living there. Thus if you sell within three years of moving out there will be no CGT.

If you rent the house out for longer than three years, then again the last three years will be treated as if you did live there, but there could be CGT due relating to the letting out over three years. The total gain would be pro rated, e.g. if you rented it out for four years, then 1/11th of the gain would be taxable (representing one year in the eleven years you would have owned it). Even if this is the case, there is a £40,000 letting allowance against your gain. Additionally your husband and youself both have a CGT allowance, assuming the house is in both names.

So in conclusion, you would have to make quite a very large gain and / or rent out for quite a while before it is likely to have a significant CGT effect.

archieboy

Many thanks for your reply, it was a big help.