Selling Second Home - Reducing Capital Gains Tax

narla_2

I have a second home which i currently rent out (rent covers mortgage). Someone told me that if i sell my second home and put the profit into my primary residence (that i currently have mortgage on) that i do not have to pay Capital Gains Tax. Q. is this true or what would be the best way to reduce tax. many thanks.

laticsforlife

narla wrote: »

I have a second home which i currently rent out (rent covers mortgage). Someone told me that if i sell my second home and put the profit into my primary residence (that i currently have mortgage on) that i do not have to pay Capital Gains Tax. Q. is this true or what would be the best way to reduce tax. many thanks.

Doesn't sound right to me, just in terms of the principle.

Lets say you buy when the market was low, and sell when high and make £500,000; then you plough that against YOUR mortgage so YOU owe less, and profit by this. Then you sell your main home and get Private Residence Relief on the whole profit element thus paying no tax, then just because you were in a position to set it off against your mortgage, you save 18% CGT, whereas someone who couldn't offset will be left with a bill.

Same applies if you used the money to say extend or improve, you will profit by a higher selling price later on that won't attract CGT.

olivetti

No complete rubbish. Sounds like they are thinking about Roll-over relief or hold over relief which are purely for business assets of a trade. Renting a house is not a trade for tax purposes.

Very little you can do to mitigate the gain on a 2nd property unless you lived there before or have some unused capital losses.

narla_2

Thanks for the advice. It was my place of residence prior to the house im in now. if thats of any help!

CLAPTON

narla wrote: »

Thanks for the advice. It was my place of residence prior to the house im in now. if thats of any help!

yes it will be of enormouis benefit to you

tells the details
buying price
selling price
when you bought it
when you lived in it
when you rented it out

stueyscott

Clapton - can you explain please. We are in a similar position.

We bought our old house in 2000 for £75000, it's now worth about £160000, we have been renting it out since 2008 after living in it for 8 years (we couldn't sell it when we bought our new house)

Any advice is much appreciated.

CLAPTON

stueyscott wrote: »

Clapton - can you explain please. We are in a similar position.

We bought our old house in 2000 for £75000, it's now worth about £160000, we have been renting it out since 2008 after living in it for 8 years (we couldn't sell it when we bought our new house)

Any advice is much appreciated.

cgt is worked out in months but I'll work it out in years

period of ownership = 10 years
period of principal private residence (PPR) 8 years
period of letting 2 years


capital gain is selling price - buying price - buying/selling cost - 'improvements '

so in your case gain is 160,000 -75,000 - 3000(selling costs say) =

82,000

now the period of PR plus last 3 years is exempt

so that means up to 11 years out of 10 are exempt are tax free so NO tax

laticsforlife

It's funny how the answer changes when we have all the facts isn't it, LOL.

Of course if you let for more than 3 years there will be a small element unrelievable, but take also into account the annual exemption (of about £9k), then you can extend that period a bit and still pay no CGT on a gain.

CLAPTON

laticsforlife wrote: »

It's funny how the answer changes when we have all the facts isn't it, LOL.

Of course if you let for more than 3 years there will be a small element unrelievable, but take also into account the annual exemption (of about £9k), then you can extend that period a bit and still pay no CGT on a gain.

if he let for more than 3 years he would also be eligible for letting relief and well as the cgt allowance of 10,100; so he would let for a few more years before any cgt was payable

Slinky

Don't forget also that if property is in joint names there will be two lots of CGT allowance which could be used (assuming you have no other gains that year). If the property is in sole name, transferring half of it to your spouse before sale would allow the double CGT allowance to kick in. Transfers between spouses being exempt from tax.

CLAPTON

Slinky wrote: »

Don't forget also that if property is in joint names there will be two lots of CGT allowance which could be used (assuming you have no other gains that year). If the property is in sole name, transferring half of it to your spouse before sale would allow the double CGT allowance to kick in. Transfers between spouses being exempt from tax.

if the spouse never lived in the premises, only half the gain would be eligible for letting relief