CGT on profit from house?

sparklycat

My husband and I are at present renting out our house as we move around alot due to his job. We own the house equally with his mum(regret this move now!) and ideally would like to sell as we ar now able to live where we want. Do we have to pay tax when we sell? we live in rented accomodation at present and have never been able to live in our own home but when we initally bought it we were going to!. My mother in law has a 2nd home which is her main residence.Is there any way round this situation? we were led to believe we would have to live in it for a year before we could sell to avoid CGT?

Sorry this is really complicated !and tax guidelines are even more vague!

Thanks for your help

Sparklycat:)

silvercar

If you had lived in it for a few months it would have helped your tax situation.

Basics for CGT are the selling price less the purchase price less sale and purchase costs less capital expenditure.

If you both own the house equally with his Mum half the profit will fall to each of you. there is tapering relief to reduce the effects of CGT and you and your husband will each have a CGT allowance of £8,800.

Post some figures if you want me to try a calculation for you.

sparklycat

Thanks Silver Car,:)

The house is worth about £220,000,(could be more, not got a proper value yet) we have a mortgage for £70,000. Mum in law is all profit as she put in cash!! for her half,so we are aware we have made less profit. Would we benefit though if we lived in it for a while before selling?(tax wise?)

Thanks for your help, let me know if you need more figures!

Sparklycat

silvercar

Also need to know the price you bought it for and how long you have owned it. The mortgage doesn't matter for CGT purposes, you should be getting relief (against income tax) on the interest payments.

Moving into it as your principal private residence (ie home) would reduce your CGT.

sparklycat

Hi silvercar,

We bought the house in 2000 for the princely sum of £100,000! blimey were houses that cheap then!!??

Thanks again for your help.

Sparklycat

silvercar

Assuming you are not going to live in it (and I'm making up a few figures as we go along).

£220,000 - £100,000 = £120,000 profit. less purchase costs (legal, mortgage arrangement, survey) and selling costs (legal, estate agents) say £8,000. = £112,000. 6 years of ownership gives you 80% chargeable gain (7 years would be 75%). 80% of £112,000 = £89,600.

so your half would be £44,800. you each have a CGT allowance of £8,800 this year so you would each have a CGT liability of £22,400-£8,800=£13,600. Payable the January after the end of the tax year when the sale happens. CGT is taxed at 10%, 20% or 40% depending whether you are a non, basic or higher rate tax payer. It could be worth transferring ownership between you and your husband if one is a lower tax payer.

If your both lower tax rate payers, the total bill for the two of you would be £5,440; £10,880 if you are higher rate tax payers.

sparklycat

Thanks silvercar,:T

It all sounds very confusing to me, as regards tax rates, my OH is a higher tax payer and my mother-in-law is a low tax payer.My name isn't on the mortgage at present but I am a low rate payer. Would this help?

We are due to move into the property in Apr as we are relocating to the area, we will then sell from there once we decide.

sparklycat

Pennywise

sparklycat wrote:

Thanks silvercar,:T

It all sounds very confusing to me, as regards tax rates, my OH is a higher tax payer and my mother-in-law is a low tax payer.My name isn't on the mortgage at present but I am a low rate payer. Would this help?

We are due to move into the property in Apr as we are relocating to the area, we will then sell from there once we decide.

sparklycat

It doesn't matter whether your name is on the mortgage - it is the real ownership which matters which is whose names are on the deeds? It may well be worth getting a solicitor to get your name put on the deeds if they aren't already, or at least do some form of trust deed giving you a proper interest, otherwise you won't get your annual allowance and none will be taxed at your lower rate.

As for moving in, yes a good move to get at least some principal private residence relief and lettings relief which will reduce your tax bill considerably. It won't help your MIL's position though - it has never been her PPR so she would not get PPR or lettings relief on her share of the profits once sold. Just make sure you move in "properly" - i.e. register to vote, get (and keep) your bank statements and utility bills addressed to that house, etc., so you can prove to the tax man it was your home, even if for a very short period of time.

sparklycat

Hi pennywise,

We are looking into the PPR issue as regards our half,my husband is classed as a crown servant and there is a chance apparently that this also may help tax situation. It seems our tax bill may not be as big as we thought.We are intending to live in the property for at least 6 months so will definitly be regisitered there.It certainly isn't going to be straightforward me thinks but it is a lot clearer now thanks to everyone. Learn't a lesson though, never buy with family unless you have to ,causes too many problems!!!!

Thanks for your answer,
Sparklycat

silvercar

if your husband has the exemption that means he can own a property that counts as PPR even though he is not living in it, you should have no tax to pay. Your MIL will still have a bill.

If he hasn't got exemption then:
Moving back into the home will give you exemption for the last three years of ownership.

£220,000 - £100,000 = £120,000 profit. less purchase costs (legal, mortgage arrangement, survey) and selling costs (legal, estate agents) say £8,000. = £112,000. 6 years of ownership gives you 80% chargeable gain (7 years would be 75%). 80% of £112,000 = £89,600.

so your half would be £44,800.with last 3 years of ownership exempt from CGT 44,800 x 4 /7 =£25,600 you each have a CGT allowance of £8,800 this year so you would each have a CGT liability of £[STRIKE]22,400[/STRIKE]12,800-£8,800=£[STRIKE]13,600[/STRIKE]4,000.

This £4,000 would be taxed at marginal rates as before.