CGT - again

Perleman

Hi all, great forum!
I have read the CGT threads but have not found exactly what I'm looking for so here goes:

I have a BTL property that we just moved out of. On selling it I take it I am liable for CGT.

1) Does my tax free allowance roll over year by year, so say I sell it for £50k profit after 5 years, and tax free allowance is about £10k per year, could I potentially avoid CGT - or do I just have the £10k allowance in the year I sell?

2) Is there some 36 month grace period when you move out - if not what does this 36 month period apply to that I have seen & heard mentioned?

3) How is the value calculated at the point where I moved out & it stopped being my main residence?

Thanks all

fengirl_2

In answer to your questions:
1. No - the annual tax free amount is just that, an annual amount, it does not roll forward.
2. The 3 year period is counted back from the day you sell the property and that is the exempt period.
3. It isnt. The gain is calculated on the striaght basis, ie selling price less cost price. The period during which you lived in the property plus the final 3 years are then deducted on a pro rata basis. So, if you owned the property for 10 years, lived in it for 2 years, then half the gain would be exempt (2 yrs residence, plus final 3 yrs if different years).
Don't forget the £40k residence exemption.
if you post some actual figures and dates, we can give you more meaningful examples.

Rolo_Tomasi

Just to add that the CGT allowance is for each individual ie if you own the property jointly then you each have the £10k annual exemption.

Perleman

Thanks for that - so is this right:

(18% x (sale price - purchase price)) x ((years of ownership - years as resident - exempt years) / years of ownership)

??

fengirl_2

Oh my goodness, you are givng me a headache!
Eg:
Sale proceeds 200,000
Cost 100,000
Gain 100,000
If the house was owned for 10 years, lived in for 2 yrs and let for the rest of the time:

Gain 100,000
Exempt period 1/2 50000
Chargeable gain 50000
Letting exemption 40000
Net gain 10000 - covered by annual exempt amount.

Its quite unusual for a let property which you have also lived in to attract CGT.

Perleman

fengirl wrote: »

Oh my goodness, you are givng me a headache!
Eg:
Sale proceeds 200,000
Cost 100,000
Gain 100,000
If the house was owned for 10 years, lived in for 2 yrs and let for the rest of the time:

Gain 100,000
Exempt period 1/2 50000
Chargeable gain 50000
Letting exemption 40000
Net gain 10000 - covered by annual exempt amount.

Its quite unusual for a let property which you have also lived in to attract CGT.

Thanks, sorry if I'm being obtuse but what is the "letting exemption"? Do you mean 'residence exemption' and what are the criteria for that?

fengirl_2

The letting exemption is available where a house has been both your main residence and let during the period of ownership. The maximum relief is £40k

00ec25

Important questions
1. you say its a BTL which you have just moved out of. When did you first start living there? Did you move in more than 36 months before you sold it - this affects the time apportionment calculation - see example below

2. When living in the property you call the BTL, did you simulataneously continue to own another property which you had been living in up to that time. Ie did you retain your ex house at the same time as then living in the BTL - this may affect which house is eligible for the PPR



CGT example and lettings relief
note - time apportionment calculations must be done in months not years

example
say you own a property for 11 years = 132 months
you lived in it for 2 years = 24 months. for purposes of this example we shall say this period was NOT during the last 36 months of you owning it

the property was let for the rest of the time you were not living in it, ie. effectively it was let for for 9 years = 108 months, including up to the day you sold it

your CGT relief periods are therefore:

Principal private residence (PPR) period = 24 months plus the automatically awarded allowance of the last 36 months of ownership irrespective of whther you lived in it or let it out during those 36 months, so 24+36 = 60 months in total
lettings relief period - balance of the remaining time, ie. 132 - 60 = 72 months

gain calculated by period
the "gross" gain in value is the difference between the price you paid to buy it at the original time of purchase and the price you sell it for, the value of the property on the date you let it out is irrelevant, the gain is the gain over the entire period you owned it. You may deduct some costs (eg estate agent fees) from these prices to give the "net" gain
Lets say you have a net gain of £150,000 mde during those 11 years of ownership

PPR relief
£150,000 x 60/132 = £68,181.82

Lettings Relief
This is the LOWER of:
a) PPR relief; or
b) gain made during the let period; or
c) £40,000 (absolute limit)

using the example, the lettings period gin is £150,000 x 72/132 = £81,818.18
(checksum £68,181 + £81,818 = 150,000)

so the potential lettings relief values are:
a) £68,181
b) £81,818
c) £40,000

the lowest is £40,000 therefore your lettings relief is capped at £40,000

Tax Payable

Total net gain £150,000
minus PPR relief £68,181
minus (capped in ths case) lettings relief £40,000

£150,000 - £68,181, - £40,000 = £41,819

Your CGT chargeble gain is £41,819

annual exemption
you are entitled to deduct your annual CGT exemption from the total chargeable gain made in any one tax year (obviously if you have other gains eg. from selling shares, this deduction is made from the aggregate total of all gains made, not just from your property transaction alone)
for 09/10 the annual exemption is £10,100 per person (so if 2 people own the property the gain of £41,819 is apportioned in accordance with the % they own (eg 50/50) and each can deduct a further £10,100 from their share

sticking with a simple case of one owner, the final tax calculation is therefore

£41,819 - £10,100 = £31,719 x 18% tax = £5,709.42 tax to be paid


anyone who owns let property should be intelligent enough to alter the above example to shoiw what will happen if:
- your let period was by far the majority of your total ownership period, so your lettings relief lowest figure may ctually be the PPR relief, which may be less than £40,000
- you only commenced living in it at some stage during the final 36 months of ownership so your PPR is restricted to 36 months (irrespective of whether you only lived in it for say 12 of those 36 months)
- the smaller the net gain figure is to start with, the more likely that the lettings gain portion will never be more than the £40,000 cap so its unlikely you will hve a CGT gain liability to be taxed on

Perleman

Wow what an answer, I'm going to take time to digest in detail later, thanks a lot