Tax due on sale of property

stevendt

I have an property which I purchased and lived in as my main residence in September 1996. I moved out and purchased a new home, now my main residence in 2004. Since then, the firsst prroperty has been rented out.

I am now looking to sell the original property. As I understand it, for the time that the property was my principle residence, no capital gains tax is due. Similarly, I believe that the tax man considers the last three years of ownership as being not liable for CGT either.

That leaves me with a period between April 2004 and say April 2007 as being liable for CGT.

Can someone please help me understand how the gain would be worked out ? Say the property appreciated from £50,000 in 1996 to £100,000 (hypothetical numbers), is the gain just divided by the total period (~14 years) so that I could apportion 3 years of that gain to the period between 2004 and 2007 or are things not as simple as that ?

Hopefully, the question is clear and someone can shed some light on the CGT rules please ?

(I know that I will be able to deduct cost of improvements etc.)

regards
Dave

Fire_Fox

Have you spoken to the inland revenue or checked their website?

mlz1413

I believe it works as below:

purchased Sep 1996 and lived in until 2004 - say Sep 04 = 8 yrs as PPR
rented until 2010 - say Sep sale completes = 6 yrs as 2nd property
Sep 2010 back to Sep 2007 is the last 3 yrs = free of GCT
So GCT is due on Sep 04 - Sep 07 = 3 yrs

so £50,000 gain / 14 yrs total ownership x 3 yrs due for GCT = £10,714 due for GCT less £10,100 allowance for this year, gives taxable charge of £614 @ 18% tax = £111 due in CGT

The tax office should be able to help you.

ET1976

This is my understanding of it, but as FF says, you need to check this out with the IR.

Lets say you sell in April 2010. You have owned the house for 13 years 8 months = 164 months. 128 of these months are exempt from CGT (you lived there, plus the 3 year rule). Therefore you are liable for CGT on 36/164 of the gain (22%), i.e. if the gain is £50k you would be liable for approx £10975.

You then also get letting relief, which is the lower of the taxable gain (£10975), the private residence relief (£39025) or £40,000 (I believe), i.e. in this case £10975, so your CGT liability is £10975 - £10975 = nothing, given these numbers.

Plus there is your annual CGT allowance as well (£10k ish).

Hope I have got that correct as a basic illustration at least!

Here is some more official help: http://www.hmrc.gov.uk/helpsheets/hs283.pdf

stevendt

Hi,

thanks for the very helpful replies folks. I had done some trawling of the HMRC web site etc. but not come across the helpsheet (thanks a lot ET).

I think that I'm on the right lines now thanks - I just wanted to get some background before I incurred the gain or talked to the taxman !

regards
Dave