Capital Gains Tax on second property

malcway

My wife and I have a second property that we presently rent out. I believe that in the event of us separating, if one of us should use the property for a certain period of time as their main residence, we can avoid CGT on the property should we then need to sell it. Am I correct, and what is the period of time?

Any advice (together with Inland Revenue references, if at all possible) would be most gratefully received!

yonk

Booklet CGT 1 - can be downloaded off In land Revenue website or ordered by phone.

https://www.inlandrevenue.gov.uk/pdfs/cgt1_1.htm

malcway

Thanks for that, Yonk.  I've downloaded the booklet but must confess to still not really understanding it. If I give some of the figures, can someone more intelligent than me calculate our CGT liability?

We inherited a bungalow in March 1999, valued at £71,500.  It has been rented out since then; neither my wife or myself have lived in it; and it seems likely that we will separate and the bungalow will have to be sold in the near future.

It is presently valued at £130,000.  Allowing about £4,500 for costs and capital improvements this will entail a gain of about £54,000.  I understand that we are taxed separately, so we each have a gain of £27,000, less the £8,200 allowance to consider, i.e. £18,800.  I am taxed at 40% on my top 'slice', so I figure my tax bill will be £7,520.

My wife doesn't work and pays no tax.  What will her tax bill be?  Any suggestions as to how I could (legally!) minimise my bill?  If I moved into the dwelling and made it my Principal Private Residence, how long would I have to live there before it is sold for it to have any significant impact on the tax due?  Once again, any help or suggestions at this difficult time will be most gratefully received!

malcway

yonk

Right, you are taxed at your marginal rate for capital gains so yours would be:

The amount you sold the property for minus what you paid for it, divided by two (half belongs to your wife) minus your personal allowance for the year (£8200) and then the remainder is taxed at 40%. Taper relief applies so if you have held the property for 4 full years, you are taxed on 90% of the gain. (3 years = 95%, 5 years = 85%).

Your wife can use up her marginal rates of income tax before she pays tax so it's more complicated.

But remember to deduct any works that were done to enhance the property, agent's fees, selling/buying costs. Probably best to get an accountant to check the calculations and to add any deductions that I've missed out.

yonk

I'm not doing calculations as I understand the principles but always get the sums wrong - there are other threads further back about CGT that discuss how long you would need to stay in a place for it to be your principle residence.