Capital Gains query

jodiecass

when I married I moved into my wifes house with her. As I owed as much in mortgage as my own house was worth, I decided to rent it out for a few years until the market picked up. The rent I receive goes on my mortgage payments. This is the 3rd year so I am worried I might have to pay capital Gains tax when I sell even though I won't have any money left after paying off the mortgage. Is there any way that I won't have to pay CGT?

John_Pierpoint

So you managed to get a more than 100% mortgage?
or
You have got behind with the mortgage?

yelf

what do you mean you wont have any money left? The period that you lived in the property will not count the CGT.

CLAPTON

when did you buy the house
how much for
how long did you live there
when did you start renting it out
whats its current value

magpiecottage

You only pay Capital Gains Tax on the gain. This will be on a pro rata basis as there is no CGT applied to gains whilst it was your own home or for three years afterwards.

The actual gain will be the difference between what you receive when you sell it (after expenses incurred in selling are taken off) and what you paid for it (after expenses incurred when buying are added).

Although mortgage interest will not normally be allowed against Capital Gains Tax but against the Income Tax for the rent you charge, you cannot normally get a mortgage for more than a house is worth so if you will have nothing left it sounds like you will have no gain to be taxed.

You are also entitled to a CGT free allowance each year. Currently the first £10,100 of gains realised is free of CGT. You could also transfer the house into joint names with your wife. This would have not itself give rise to CGT but would then mean you each had £10,100 allowance to use up.


On the other hand there would be costs involved in putting it into joint names so joint names so you would need to look at whether it made sense to do so.

jodiecass

continuing from my previous enquirey, I bought the house for £46,000 but was forced to remortgage to a total of £140,ooo when my business failed, at that time my house was worth around £180,000, due to the house market dropping it is only now worth around £150,000. I have been renting it out hoping the market would improve. I won't have any money left is I sell at the moment, so would I have to pay CGT?

CLAPTON

jodiecass wrote: »

continuing from my previous enquirey, I bought the house for £46,000 but was forced to remortgage to a total of £140,ooo when my business failed, at that time my house was worth around £180,000, due to the house market dropping it is only now worth around £150,000. I have been renting it out hoping the market would improve. I won't have any money left is I sell at the moment, so would I have to pay CGT?

better simply to answer the questions I posed above
they are necessary to answer your cgt query
for cgt purposes the size of your mortgage makes no difference althoguh the interest component may affect your liability to income tax on the rental income

jodiecass

I bought the house 15 years ago for £46,000. I lived there until late 2007 when I moved in with my wife. I have rented it to my father now for 2½ years. He pays £700 per month, my mortgage payment is slightly over £700 per month. My father is not a well man so I do not want to ask him to leave for me to sell before the 3 years which is why I need to know how much CGT I will have to pay but letting him stay over the 3 years.

CLAPTON

the calculation needs to be done in months rather than years but for convenience I will do it in years

period of ownership 15 year
period of residency is 12 years

purchase price 46,000
current value 150,000

gain is 150000 - 46000 = 104,000
you can also deduct buying and selling costs ..lets say 3000
so gain is now 101,000

your period of residency (PPR) is exempt from cgt and so is tha last 3 years so you would be liable to no tax

but lets say you don't sell for a further 4 years
then it would work out like this

period of ownership 19 year
period of PPR 12 years
period of letting 7 years

gain would be 101,000
so exempt for 12 + 3 year of 19 i.e. 101,000 x (15/19) = 79,700 so
gain is now on 21,265

also you are allowed letting relief .... the less of the period of the let (7years = 101,000 x 7/19 =37,210) or PPR or 40,000


so once again no cgt is payable

also you have your personal cgt allowance of 10,100
and you can transfer half the house to your wife (if married) and use her 10,100 although being mortgaged would be a complication


so you see that in general if you have lived in the property and then let it's unlikely for a modestly priced home you will pay any cgt at all

as you are letting I assume you have told HMRC about your rental income; you can offset the INTEREST on the mortgage to the value at the time of first renting against the rental income

jodiecass

Thank you so much for all of that information. An even bigger thank you from my father..... what a relief !! I must add that yes, I have informed the HMRC about my rental income... Thank you again...