Capital gains tax

pixie135

Hi, We bought a house in 2001 to use as our main home. In 2004 we moved abroad with work so we rented our house out. It has now been rented out for the last 6 years but now we are returning to the uk, but don't want to live in the same area so we will have to sell it. My question is will we have to pay capital gains tax when we sell it, if the answer is yes how long would we have to live in it before we were exempt. Thanks for reading

Pixie

silvercar

Depends whether the work qualified it to still be considered your principal private residence. If it dodn't then you will be exempt from CGT for the time it was your home and the last 3 years of ownership. Additionally you will have letting relief and your personal CGT allowances (if not used elsewhere) so the tax will be reduced.

Raggs_2

Assuming the price hasn't rocketed, you almost certainly won't have to pay anything. If it is under both your names, almost certainly certainly.

They will take the price at purchase, the value sold, and divide the profit up equally between the years. Out of the nine years (or ten) 3 years you lived there, and you get another 3 years on top of that. You also, assuming you haven't used it, have 10k each, per year of CGT allowance.

Once all that has been taken into account, unless you bought the bargain of the millennium you shouldn't have to worry. Though changes are coming, so who knows .

pixie135

Thank you for the replies. I was told I had to go and live in it for 6 months and then I wouldn't have to pay any CGT. Do you know if this is true

Thanks

Raggs_2

Is it jointly owned? If so, assuming you haven't used your CGT allowance elsewhere, you have around 160-200k of allowance (to my knowledge), before even dealing with any of the reliefs. Has the property increased in value by that much?

EDIT - Actually I'm no longer so confident that you get all the past years added up... But if you jointly own it, I do believe you should get 80k letting relief, and then 20k cgt allowance for the year you sell, so still, 100k, on less than half the increase (3 years you lived there, 3 years on top of that, 3/4 left)

pixie135

Thank you for your reply. Yes it's in both our names as we were told it's best to do that. The house has gone up in the last 9 years by 100k. Sorry but to me this tax thing is so confusing.

Thanks Pixie

silvercar

pixie135 wrote: »

Thank you for your reply. Yes it's in both our names as we were told it's best to do that. The house has gone up in the last 9 years by 100k. Sorry but to me this tax thing is so confusing.

Thanks Pixie

The actual calculation is done in terms of months owned not years, but you'll get the picture.

You lived in it for 3 years, so you are exempt from CGT for the 3 years it was your home and the last 3 years of ownership, so 6 out of the 9 years in total. So you only are liable for 3/9ths of the gain=100/
3=33,333.

Then you get letting relief which is restricted to the minimum of:
a) the gain when it was your home = 33,333
b) the gain when it was let = 66,667
c) 40,000
minimum = 33,333.

Leaving you with no CGT to pay. You also have CGT allowances of 10,100 each, so you have plenty of leeway.

You should both include details of this in your tax returns, taking half the gain each.

NOTE THAT THE BUDGET ON TUESDAY COULD CHANGE THE RULES COMPLETELY.

pixie135

Thank you so much, you've been such a great help

Thanx Pixie :T

aw69

Hi,
Apologies for hijacking Pixies thread but i would actually like to know the answer to the earlier question about what happens with CGT if you move back into a property.

I am in a similar situation to Pixie, I lived in my house for 6 and a half years, moved abroad for work and the property was rented for 3 years and 9 months. I moved back to the UK and into the house 9 months ago and and am now trying to sell it. If I understand things correctly, the longer i live in the property until it sells the bigger the overlap there is between last 3 years of ownership exemption and property as main residence exemption. For example if i had sold immediately i returned to the UK I would have had exemption for all but 9 months of ownership but if I sold today the period exempt from CGT would have reduced by 9 months as I am living in the property during the last 3 years of ownership, leaving me with a period of 18 months that is not exempt. And if I didn't sell for several years I would eventually end up with a period of 3 years and 9 months that is not exempt.

I know that this is all a bit academic as tomorrow everything could change but it does seem a little unfair and has been puzzling me for a while. Are there any CGT experts who can confirm that my understanding is correct?

Thanks, AW

silvercar

aw69 wrote:

For example if i had sold immediately i returned to the UK I would have had exemption for all but 9 months of ownership but if I sold today the period exempt from CGT would have reduced by 9 months as I am living in the property during the last 3 years of ownership, leaving me with a period of 18 months that is not exempt. And if I didn't sell for several years I would eventually end up with a period of 3 years and 9 months that is not exempt.

Exactly right.

But having let the property you also get letting relief, this is the minimum of:

a) £40,000
b) the gain whilst letting
c) the gain while it was your PPR

So moving back in could increase (c).

Also once you have been back more than the 3 years, the percentage of the total not subject to CGT increases.

getmore4less

silvercar wrote: »

Also once you have been back more than the 3 years, the percentage of the total not subject to CGT increases.

but it drops in the first 3.

3(ppr) 3(rent) 3(last 3) so 3/9th taxable
3(ppr) 6(rent) 3(last 3/ppr) so 6/12th taxable. after living in it for another 3 years