CGT question - profit on higher sold price or on equity released?

millepede

Hi, this is all new to me so have been researching CGT implications when selling a 2nd home and this site has been very helpful, but wanted to check my understanding.

Husband bought (and only named owner) a flat 4 years ago. We are currently in the middle of purchasing a 2nd home together and will rent out the flat with 2 years consent to let mortgage. My first question is around income tax on the rental income, is it based on the full rental income received? As my husband is only on £20k basic i am assuming this will be reflected in the tax we see on this rental income ie on the lower tax band? Does he need to complete a SA to ensure tax is paid?

CGT question is on the definition of profit. Do you only pay CGT if you buy for say £235k and sell for £250k - taxed on the difference?

If we sold the flat we are not likley to make any profit, ie sell for more than the buy price but do you get taxed on the equity released anyway as he has a large deposit?

Many thanks for your help and comments.

ceeforcat

1) The house is in his name nad your references to 'we' unfortunately do not apply in the tax process.

2) he must register for SA but will pay tax on the profit made after expenses e.g. rates, repairs, loan interest etc.

3) To date it has been his main residence and would be exempt from CGT. If he rents it out and sells it within three years, that will remain the case. After that, the position alters - longer the flat is not main residence, the bigger the chargeable gain. There is also a tax free exemption of just over £10000.

CLAPTON

for cgt
he is taxed on the gain in value i.e. the difference between selling price and buying price less buy/sell costs
the amount of 'equity' or deposit or the size of the mortgage have nothing to do with cgt.

as ceeforcat says he is exempt for the time he lived there, for the last three years and has letting relief for the period of letting plus his annual cgt allowance of £10,100

so in practice he can be letting for quite a time before cgt will actually be payable


As far a income tax is concerned bear in mind he can reduce his profit by the interest payments on loans up to the the value of the property when first let.

millepede

Thank you both, this was really helpful