capital gains tax, can someone explain some things to me?

blushingbride_3

hi

my parents have been trying to sell there house for past 1.5yrs and there new house is now ready (refubishment)

now they brought the house 25yrs ago for £70k and its now worth £500k

they've done extensions etc

now i think maybe they could rent it out?! but dad is worried it wont be worth it due to capital gains.

Its either that or i move in & have lots of lodgers

BitterAndTwisted

That house cannot be "worth " half a million quid if they can't find a buyer after one and a half years on the market!

Have your parents sought the services of an accountant to advise them on Capital Gains issues? I suggest that they do that asap

blushingbride_3

well thats what it has been valued at by several surveyors and all the offerst they have had have been around that mark.

they havent spoken to an accountant, i wanted to get some information on here first

Can anyone else help?

mrcol1000

Anyone who sells their property for more than what they paid for it has to pay captial gains tax. However if its your sole private home that you live in then you get tax relief so don't have to pay it. If they rent the property out they won't be entitled to that relief so will have to pay captial gains tax on the profit.

tyllwyd

Have your parents been in living in the house as their main residence for the past 25 years? If so, they shouldn't have any CGT if they sell now, and I think that applies for the next three years as well. After that, they might have to pay CGT based on the increase in value since they've moved out. If they are thinking of renting it out, they should get professional advice to make sure they do all properly, because the rules are complicated and a mistake could be very expensive!

blushingbride_3

ok thanks everyone

yes they have lived in it for past 27 years so we will get some more advice, even if its just renting until a buyer comes along

Skint_Catt

If they've had several offers 'around the £500k mark' why can't they sell it? Or are they not willing to take a drop even in the current market?

blushingbride_3

various reasons, last person pulled out because of illness

blushingbride_3

they have dropped the price, it was previously valued at £600

00ec25

blushingbride wrote: »

ok thanks everyone

yes they have lived in it for past 27 years so we will get some more advice, even if its just renting until a buyer comes along

there is no need to take further advice, your position is simple

CGT rules
1. it is their main residence for the last 27 years. Therefore they get Private Residence Relief (PRR) meaning they get 100% exemption form GCT to the date they move out.

2. At the date they move out (so move into the new house) then because it was their PRR they are entitled to a further 3 years (36 months) of PRR - this is called the "deemed occupancy period". It does not matter one jot what they do with it in those 3 years , eg they can leave it empty or they can let it out for 3 years - either way they get an additional 3 years CGT exempt from the date they move out

3. Also stemming from PRR status, if they have let it out, then after the 3 years have elapsed, they are then additionally entitled to "letting relief" - but this is capped at £40,000 per owner

4. each owner (so both parents if it is jointly or tenant in common owned) also get £10,600 personal allownace in the tax year they sell it in (@11/12 rates)


have a look at #3 on this thread for an example of the letting relief calculation. Your parents house would have to increase an awful lot in value before they would ever have to pay CGT, even though it is liable for CGT once they move out.
Tot up the reliefs available - assuming jointly owned - they get 10,600 x2 plus (if let out) 40,000 x 2 . So it would have to rise in value by £101,200 (ie about 20%) before they sell it for then to ever be in danger iof having to PAY any CGT. Don't think its gonna go up 20% anytime soon !!!


if you want to understand it yourself the references are:
1. HMRC helpsheet on selling your home here

2. basic guide to CGT on directgov website here