CGT on rental property now we're co-habitating!

tractorsaint

Currently my partner owns her own house (with mortgage) which has circa 100k equity. We are living in my house currently but are about to buy a property together.

Does anybody have any advice re: her own house and Capital Gains Tax. It's had rental tenants in it for the past 2 years and her name is on the deeds & mortgage for that property and I have no link to it. We're envisaging that both of us will be on the deeds and mortgage application for the new property.

Any advice greatly appreciate.

TS

claretmatt

What is your aim with the property, to sell and use the proceeds or to continue to rent?

In regards to the CGT the gain will be calculated by dividing the period of occupation by the total period of ownership and then multiplying this by the total gain. The gain will be calculated by deducting the mortgage, selling fees, annual cgt allowance and other associated expenditures from the sale price. The net gain will then be multiplied by 18% to give the CGT rate.

There are some periods of absence that can be ignored including

- last 36 months of ownership.
- Peiord of upto 3 years if both proceeds and followed by residence during which time no other residence was except
- periods of upto 4 years if working in another part of the country

One thing to consider is your mortgage position going forward. If your partner's house is a residential mortgage then she will either have to convert to buy -to-let or your new mortgage will have to be on a let to buy basis. It may also be a consideration to convert her property to interest only, which may lessen the impact of CGT.

You should remember that income received from the property is treated as taxable income and therefore your partner should self assess

tractorsaint

Thanks Claretmatt - we don't need to sell her property in order to purchase our new house together but, if it means we have to pay CGT in the future on her other house, we might consider selling it now. She remortgaged her house on a fixed term until end 2012 specifically with a letting clause in the mortgage so we're covered from that aspect.

It's more a case of do we sell her house now to avoid CGT or is there a way we can buy a house together but she keep her PPR as the rental property (and at the end of 2012 she moves back in for a day and makes it her PPR then for us to sell). We want to keep her rental property as a bit of a nest egg for future but don't fancy paying CGT.

Thanks!

tractorsaint

jimmo wrote: »

Mortgage costs are not allowable for Capital Gains Tax purposes
First, and very importantly, when you refer to your partner are you referring to a (same sex) civil partnership or something less formal?
Civil Partners are treated the same as a married couple and the tax rules are very different to that for 2 individuals.

Thanks for that Jimmo - I refer to her as 'my partner' because I don't like 'girlfriend' as it's more serious than that We're planning to get married at some point (but don't quote me or tell her!) - do we need to sell the other property before that happens?

CLAPTON

facts always help

when did she buy the property
at what price
when was it let out
what is price now

tractorsaint

jimmo wrote: »

OK, just for you, it might make financial sense to sort out the houses before you think about the big M.

Jimmo - brilliant - thank you very much. Will print off the PDF and work through our numbers. This certainly appears to have everything we needed to be answered in it. Thank you again.