Capital gains on rental property

chris.lewis

Hi,

I own a property with a normal mortgage who have given me permission to let. I was told today that if I don't sell the property within three years I will have to pay capital gains on any profit I make from selling the property.

Also is it from the day I moved out of the property or from when I rented the property?

Is that correct?

Chris

opinions4u

If it's not your "primary residence", yes.

Probably best posted on the Cutting Tax forum.

holly_hobby

Essentially yes - once your (unresided) ownership exceeds 3 yrs from vacation, any gains realised on sale are subject to CGT calculations.

That being said, any gain is then adjusted by the period when the property was held as your main primary residence plus the last 3 yrs of ownership (which is also excluded from CGT calcs), plus lettings allowance and your annual cgt allowance - which will reduce you bill by quite a chunk on todays rates.

Any residual bill to pay is made via your annual submission.

Here is HMRC helpsheet which may help you understand it further .. http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Hope this helps

Holly

chris.lewis

Hi,

Ok maybe I can give some figures to help. I bought the property for 125,000 I lived there for 16 months and it has been rented for 12 months at £665 a month mortgage is £650. The property is worth around £150000 now and I didn't spend any money doing any work to it. Is there an easy way to work out what I would owe?

Chris

holly_hobby

You won't owe any CGT until 3 yrs from when you vacated it.

Are you asking us to work out a hypothetical bill, based on you selling it after the 3 yr term ?

If you read the HMRC paper I have linked for you in the above post, its pretty easy to be honest.

Holly

dimbo61

You only owe CGT when you come to sell the property!
Your accountant should be telling you this as you need to do a TAX return on your rental income each year

chris.lewis

Yes, my mortgage is fixed until 2014 (after the three years is up) and I have to pay a ERC if I settle before then so need to work out which one is more.

holly_hobby

dimbo61 wrote: »

You only owe CGT when you come to sell the property!
Your accountant should be telling you this as you need to do a TAX return on your rental income each year

He may not have an accountant doing his self assesment return.

But I do hope for his sake, that has declared his rental income in this yrs first annual return :eek: !!

Holly

chris.lewis

Yep I am submitting my annual returns but not using an accountant!

opinions4u

chris.lewis wrote: »

Ok maybe I can give some figures to help. I bought the property for 125,000 I lived there for 16 months and it has been rented for 12 months at £665 a month mortgage is £650. The property is worth around £150000 now and I didn't spend any money doing any work to it.

While not knowing your property or the area it's in, a 20% price increase in 28 months during one of the most difficult period's the British housing market is some achievement.

Is there any secret to your gain?

chris.lewis

Yes buy the last plot of a developer during the downturn who has to sell, property was on at £174,000 I paid £125000 all other flats in the street went for around £150,000 and had it valued for a mortgage last year at £150,000.