Am I Exempt From CGT?

mkeeley

Hello

I own a property up North that I rent out to a relative, whereas I live down South in a rented flat. I'm considering selling the house to upsize whilst prices in the area are still within my reach. However whether I do or not in the immediate future depends on whether I'd have to pay CGT when I sell the house. As I only own the one property am I exempt from CGT even though it's been rented out?

Thanks

Marc

david29dpo

you will be liable for GCT if you sell the rented flat. but it depends what you paid, what you sell it for and how long you have owned it. dont forget that every person named on the deeds has there own allowance.

Tassotti

Did you ever live in the property oop north?

PoorDave

If the property has recently been your primary residence, then this will help.

Liability should be sale price minus purchase price, then apply taper relief depending on how long you've owned it.

The you can use your (currently) 8800 pounds CGT allowance per person owning the house

mkeeley

Thank for the replies, although I was hoping the answer was going to be I wouldn't owe anything as the House was the only property I owned :-(

Anyway, no I've never lived in the house, bought it approx. 2 years ago. I'm the sole name on the deeds.

The house cost me £30K plus I spent about 6K on central heating and a couple of other things. I rent it out to a relative, my Mums cousin, she's going to get it valued next week but it looks as though it's now worth £55K-70K depending how desirable my road is deemed to be.

I assume any upgrades, like CH, aren't taken in to account so, if it's now worth £60K I'd be liable for £21,200 in CGT, but may be less than due to taper relief (don't know how that works, I'll have to investigate).

I'm a standard 20% tax payer so I assume that's the rate I'd be charged for CGT or does the profit change my effective income and so would move me up to the higer tax bracket?

Marc

PoorDave

I think you're only liable for CGT on the gain, not the full amount.

So if you sell for 30k more than you bought for the gain is 30k.

Whenever you sell you have that years allowance, so 21200 is taxable.

I don't think the rate is necessarily 40%. I think it only works that way if you're a 40% tax payer to start with (you don't say).

At 40% though you're looking at around 8.5k max, assuming you paid 40% and got taper relief.

Taper relief should be on hmrc website.

Tassotti

Its a little more complex than that. There are other items which you can offset against the CGT...purchasing/selling costs, improvements (CH), etc...

You really need to speak to an accountant

Tomthumb

Can't you carry it over to the next property if you are buying another as an investment?

silvercar

Tomthumb wrote:

Can't you carry it over to the next property if you are buying another as an investment?

no, a taxable event occurs when you sell. If the house was owned by a company there may be some corporation tax relief if you bought another property, but you would still have the problem of getting the money into your own name.

No tapering relief either, as you've owned it for less than 3 years.

Capital expenditure can be used to reduce the liability; I don't know if central heating counts or not.

So, £30k gain, less £8.8k CGT allowance, less (I assume) purchasing and selling fees, solicitors etc = approx 20k

This is taxed at your marginal rate. So if you pay standard rate tax, the amount that will take your total earnings into the higher tax bracket will be taxed at standard rate and the remainder at higher rate.

All entered on your tax return for the year in which the sale occurs, payable normally the January after the end of the tax year.

mkeeley

Thanks everyone's advice.

May be better off finding a second cheap doer-upper (assuming there are any left), depends on how much mine is valued at, as, in theory, I would be paying over £10K in CGT if it's valued at the upper end.

Probably doesn't sound like much to most of you but the plan was to upsize with my savings, so makes a fair difference. As the area is way below the national average it's actually possible to do that still.

I'll have to have a think!

Marc.

dougk_2

Do you don't own the flat you live in?
You just own the one house right. Surely you are best to make that your principle residence for a while????? If you made it your principle residence now by the time it sold (probably 2 months time) then you would be selling your only home so CGT would not apply isn't this right? well thats my yake on it.
A rented property you live in is not a second home is it??????