Tax implications of selling a second home previously rented by a family member

Russ80

Hi, we've had a death in family and person was living in mine and my wifes second home. She was paying rent at substantially less than the markets rate and there was no formal contract.

Now we are thinking of selling the property. What if any tax relief are entitled to?

As it's a second home I understand we'd have to pay GCT but I also understand everyone as a annual GCT allowance. What is the rate?

Basically the property has increased in value by about 80k. What percent of this would we (my wife and I) have to give to the tax man?

Thanks for you help.
R.

zorber

Regarless to who was living there and what they were paying in rent, the only issue that the tax man will be interested in in the fact you are selling your second home and for that privalige they can impose 40% tax on the £80k that the house has increased by.

You can get out of this if the owner of the property moves in for a period of 6 months and treats this house that they wish to sell as their primary address.

I would if it meant loosing that amount of money in tax.

ukcarper

zorber wrote: »

Regarless to who was living there and what they were paying in rent, the only issue that the tax man will be interested in in the fact you are selling your second home and for that privalige they can impose 40% tax on the £80k that the house has increased by.

You can get out of this if the owner of the property moves in for a period of 6 months and treats this house that they wish to sell as their primary address.

I would if it meant loosing that amount of money in tax.

Not sure that is right have a look at this http://www.hmrc.gov.uk/cgt/property/basics.htm#1

loubeedoo

Mis read post, sorry!

CLAPTON

if its jointly owned then you would be able to use both persons cgt allowance (currently 10,600 pa)

have you ever lived in the property?

if not then the tax would be something like

profit 80,000
less costs of selling ..say 2k
so profit 78,000

so profit per person is 39,000
less cgt allowance 10,600
is 28,400

this is 'added' to your income and taxed at 18% or 28% depending upon your tax band

MacMickster

If you haven't been declaring the (low) rental income that you've been receiving, then the sale of this property might prompt the taxman to ask some questions now.

Jeffrey_Shaw

I doubt it. HMRC doesn't usually scrutinise sales to see if V [vendor] has been letting at a rent.

00ec25

zorber wrote: »

You can get out of this if the owner of the property moves in for a period of 6 months and treats this house that they wish to sell as their primary address..

this is a much quoted and totally wrong urban myth - there is no "get out" based on the length of occupation (see * below).

the rate quoted by zorbers post is out of date, the correct calculation is as Clapton's post #5, the 28,500 is added to each person's income to determine if its tax @ 18 or 28%

however, as he says, if you have previously lived in it as your MAIN residence then that would change matters and you would also then be entitled to letting relief even though it was a discounted rent. (clearly if you had lived there as your main residence whilst simultaneously owning a 2nd property then the other place will be liable for CGT for the period you lived elsewhere )


* If you were to move into it now, before selling it, then HNRC would allow you to claim 3 years of main residence relief BUT you would have to prove that it was really your main home and HMRC will regard this with some suspicion - they will expect it not simply to be down to length of occupation but will test it as a mix of all sorts of factors to do with the quality of your occupation eg: you commute to work from there, return there each evening, your social life is there, your friends expect you to be there if they call on the off chance, all your correspondence goes there, electoral roll, you naturally quote it as your address to any one who asks where do you live etc etc .

MacMickster

Jeffrey_Shaw wrote: »

I doubt it. HMRC doesn't usually scrutinise sales to see if V [vendor] has been letting at a rent.

The sale itself might not alert them, but I would imagine that the fact that Capital Gains tax is due (meaning that it was not V's main residence) might warrant a quick check of the electoral register to see who was living in the property or a phone call to the council to find out who was being billed for council tax.

Then again, maybe the tax man isn't too bright.

theartfullodger

Russ80 wrote: »

...
Tax implications of selling a second home previously rented by a family member
.

1: Council tax - if now unoccupied you'll have to pay CT unless you can get an exemption if it is unfurnished (contact council...)
2. Income tax - assume you've declared the income but be aware HMRC can tax on market rent rather than "alleged" low rent if they ain't convinced as to the veracity of the claim..
3. CGT - see above..

I think there are at least 4 more taxes a landlord may be liable for but can't see any particular implications for them - someone cleverer than me will no doubt advise shortly...


Cheers!