capital gains

avit

Hi I have a friend that brought his house 5 years ago and lived there for 1 year when he lost his job. He then moved back in with his parents and let the property out for 4 years and is now selling the property. Will he have to pay capital gains on any profit. This was his only house, and will make 55k approx

thanks

Scorpio21_2

Capital Gains Tax is not payable when a person sells their "Principal Place of Residence". If your friend is able to prove that this is the case then CGT should not be payable. To ensure this he should move back in the house for a length of time before the sale completes.

The HM Customs and Excise web site is very user friendly and should be able to provide all the answers you need regarding CGT.... https://www.hmce.gov.uk.

avit

Thanks for link I will look for him now. He lived there for a year, rented for 4 and moved back in for 2 months and now almost sold. Not sure if this is ok or not?

avit

anyone else have any views on this, cant make sense of half of it:rolleyes:

silvercar

if you own it for 5 of which you live in it as your principal private residence you are exempt from CGT for the year you lived in it plus the final 3 years of ownership. so that equals 4 of the 5 years. so your exempt on four fifths or 80% of the gain. but if you let a property that was your PPr you also get lettings relief of upto 40k, so putting the two together there won't be any CGT to pay.

Everyone also gets a CGT allowance, currently £8,800.

so your friend should be in the clear.

Ian_W

He shouldn't have any CGT to pay - but it may not be as simple as Scorpio suggests. I don't think it would qualify as his PPR during the time he moved out to his parents. Even so he will have other relief's that should see him OK.

If he's lived there 12 months, that period plus the last 3 years ownership however the prop is used are exempt so 1/5 of the gain is potentially taxable. However, in addition he'll qualify for up to £40K letting relief, 15% taper relief and has an annual tax free CGT allowance of £8,800 this tax year.

He will need to declare it on a SA tax return after April 2007 and before Jan 2008. As you can see it's quite complicated so it might be wise to give the figures to an accountant to fill in the form - should cost <£200.
There's another difficult to understand helpsheet at:
https://www.hmrc.gov.uk/pdfs/2003_04/capital_gains/ir283.pdf

EDIT: Double posted with silvercar but proves that great minds think alike!! ;-)