Capital gains tax on rental properties

conradmum

We're moving abroad soon and will be renting our house out for the next 5 or six years, possibly selling it on our return.

Is it worth getting the house valued now in order to calculate possible capital gains if we sell it later?

terryw

Probably not, but it is worth while collecting estate agents particulars of similar properties in the area, and making copies from the net of the prices that houses actually sold for.

I am working from memory here, but is the gain not apportioned according to the number of years let and not on the actual value when it is let?

conradmum

terryw wrote: »

Probably not, but it is worth while collecting estate agents particulars of similar properties in the area, and making copies from the net of the prices that houses actually sold for.

I am working from memory here, but is the gain not apportioned according to the number of years let and not on the actual value when it is let?

I thought it was based on the increase in value over the number of years it was let, which is why I thought we should find out the value it is now.

But then I'm not really clear on this, hence the question.

terryw

Again from memory, if you let a property that you previously had as a PPR (principal private residence)
there is a concession about the last few years being considered as occupied by you. I have to go out now but if you google the above you will find the details or another MSE bod will wander along and give chapter and verse. I will check later today when I return. bw

antrobus

conradmum wrote: »

I thought it was based on the increase in value over the number of years it was let, which is why I thought we should find out the value it is now.

But then I'm not really clear on this, hence the question.

No, it's based on the difference between what you sold it for and what you paid for it, which is then time apportioned as necessary.

In any case, if you're going abroad to work, the property may well still qualify as your principal private residence, and thus there won't be any CGT to pay anyway.

conradmum

antrobus wrote: »

No, it's based on the difference between what you sold it for and what you paid for it, which is then time apportioned as necessary.

In any case, if you're going abroad to work, the property may well still qualify as your principal private residence, and thus there won't be any CGT to pay anyway.

So, we paid £140,000 in 2000 and we're moving abroad this year (not specifically for work). If the property is worth, for example, £300,000 in 2017, we'd be liable for capital gains tax on 6/17ths of £160,000?

CLAPTON

conradmum wrote: »

So, we paid £140,000 in 2000 and we're moving abroad this year (not specifically for work). If the property is worth, for example, £300,000 in 2017, we'd be liable for capital gains tax on 6/17ths of £160,000?

better than that

the period of ownership will be 17 years

exempt is the period of residence i.e. 11 years plus the last 3 years so 14/17th will be exempt

if you let the place out you can claim letting relief up to 40,000 each (if joint ownership)

plus you have cgt allowance of 10,600

conradmum

CLAPTON wrote: »

better than that

the period of ownership will be 17 years

exempt is the period of residence i.e. 11 years plus the last 3 years so 14/17th will be exempt

if you let the place out you can claim letting relief up to 40,000 each (if joint ownership)

plus you have cgt allowance of 10,600

Thanks. I hadn't even heard of letting relief, and I thought the 3 additional years after letting out the primary residence were lost if the house continued to be let after that period.

Another question, if I may? If we were to live in the house for a further three years once we return to the UK, would that wipe out any cgt obligations, or would we still be liable for 3 years' worth of gain in value from when we first bought it?

CLAPTON

the three additional years are the last three years of ownership

if you returned and lived in the house for three years

then period of ownership would be 20 years
you would have 14 years of occupation
and 6 years of letting

so you would be exempt for 14/20th of the gain
plus letting relief


lets give a little example

purchase price 140,000
selling price 300,000

gain = 160,000
buying /selling costs lets say 10,000

so net gain 150,000

so 75,000 each assuming joint ownership

so PPR relief 14/20 of 75,000 = 52,500
so gain now = 22,500

letting relief the smaller of 5/20 of 75k or 40,000 i.e. smaller of 22,500 or 40,000


so net gain zero and you haven't even used you cgt allowance of 10,600

conradmum

CLAPTON wrote: »

the three additional years are the last three years of ownership

if you returned and lived in the house for three years

then period of ownership would be 20 years
you would have 14 years of occupation
and 6 years of letting

so you would be exempt for 14/20th of the gain
plus letting relief


lets give a little example

purchase price 140,000
selling price 300,000

gain = 160,000
buying /selling costs lets say 10,000

so net gain 150,000

so 75,000 each assuming joint ownership

so PPR relief 14/20 of 75,000 = 52,500
so gain now = 22,500

letting relief the smaller of 5/20 of 75k or 40,000 i.e. smaller of 22,500 or 40,000


so net gain zero and you haven't even used you cgt allowance of 10,600

Thanks, letting relief is quite generous.
So it looks as though we can let our house out without any tax at all to pay when we sell it. :j

taxing

Sell the house while you are still non UK tax resident and there will be no tax anyway provided you are away for 5 complete tax years.

Non residents don't pay UK cgt.

BUT you must stay out for 5 years or more as there are anti avoidance rules to stop people going abroad for one year - selling a valuable asset while non resident - then returning the next year.

Doesn't look like this will apply to you though, as you intend to go abroad for a while.

From the scenarios it doesn't really matter too much as there would appear to be no gain anyway once all the exemptions are applied BUT might be worth keeping in mind if your plans change and you do need to sell.

You would need to check if the country you were then it would want to tax it, though.

Regards.