Selling property which has been let

BlueVinney

About 12 years ago we bought a property to help transition to retirement and now we want to sell.

The history is that we let it for a couple of years and then lived in it for a couple of years immediately after retirement. We moved to a larger house (relatives kept visiting us for holidays!) and have been letting the original one for the remaining time. The last tenant moved out about 4 months ago and we now have a buyer.

Before events proceed further I want to make sure we are doing all we can to (legally) minimise our tax burden. The property has increased in value by £85k over the 12 years and we have no further capital gains during the current tax year.

Could an expert please advise if there is anything we can do to minimise the tax take and suggest how much this might be?

Thanks.

(Maybe if I'd been an MP I'd possibly have switched houses before selling !!!)

CLAPTON

you need to be more spefic

when did you buy it ... month and year
when it was let months and years
when you lived in it months and years

is it jointly owned?

as the tax depends upon these things

BlueVinney

Clapton, thanks for your response. The information you requested is as follows:

We first bought it June 2000.
It was let September 2001 'til July 2002
We retired and lived there August 2002 'til June 2004
It was let from July 2002 'til July 2011

The house is jointly owned.

Thanks for your help.

CLAPTON

it works like this

you are taxed on the profit less allowance expenses less various reliefs

you need to check the arithmetic . not my strong point

lets suppose you sell in april 2012
period of ownership will be 142 months

the profit (gain ) is assumed equally for each year of ownership

gain her is 85,000 but you can deduct buying and selling costs; must be worth a couple of grand but I will stick with the 85k


1. first exemption is the period you lived there plus the last 3 years so 10 +36 months = 46 months

so exempt is 85,000 x 46/142 = 27,535

2. then you get letting relief ; the lesser of 40,000 or the period let so in this case 40,000

so taxable gain is 85,000 - 27,535 -40,000 = 17,464

3. as it's jointly owned then your gain is 8,732 each

4. conveniently you each have a capital gains tax allowance of 10,600 per year so assuming you haven't already used it

then No tax to pay

don't spend it all at once.

hope you are enjoying retirement

pjclar02

Hello there

I'm afraid I disagree with Clapton's calculations below (although as luck would have it the end result is the same). Specifically, lettings relief is also calculated by reference to the PPR due. As the PPR due in the calculation below is only £27,535, then the maximum lettings relief available would be restricted to £27,535 which in Clapton's calculations would give rise to a taxable gain. However, that said, I think there are also some fundamental arithmetic errors which do also effect the calculation - being that actual ownership appears to be much more than the 10 months used.

I also think there is some uncertainty in the dates provided by BlueVinney which may need clarification but hopefully will not impact on the end result. You state that the property was let from September 2001 until July 2002, that you then retired and lived in the property from August 2002 to June 2004. You then go on to say that the property was let from July 2002 to July 2011 and this results in an overlap. Presumably this is a typo and you mean from July 2004 to July 2011? Also, what happened with the property between the date of acquisition and the date it was first let - presumably it was empty and not occupied as your main residence?

If my two assumptions above are correct, you therefore have the following:

June 00 - August 01 = 15 months vacant
September 01 - July 02 = 11 months let
August 02 - June 04 = 23 months occupied
July 04 - July 11 = 85 months let
August 11 - November 11 = 4 months vacant

Total period of ownership = 138 months
PPR qualification = 59 months (23 months of actual occupation + last 36 months)

PPR exemption = £85,000 / 138 * 59 = £36,340
Lettings relief = £36,340

Total gain = £85,000 - £36,340 - £36,340 = £12,320

If the property is jointly owned between two individuals (you make references to "we" so I presume this is the case), then as stated by Clatpon the annual exemption from capital gains tax will swallow up this gain and there will be no tax to pay.

I hope this helps.

Best wishes

Paul

CLAPTON

pjclar02 wrote: »

Hello there

I'm afraid I disagree with Clapton's calculations below (although as luck would have it the end result is the same). Specifically, lettings relief is also calculated by reference to the PPR due. As the PPR due in the calculation below is only £27,535, then the maximum lettings relief available would be restricted to £27,535 which in Clapton's calculations would give rise to a taxable gain. However, that said, I think there are also some fundamental arithmetic errors which do also effect the calculation - being that actual ownership appears to be much more than the 10 months used.

I also think there is some uncertainty in the dates provided by BlueVinney which may need clarification but hopefully will not impact on the end result. You state that the property was let from September 2001 until July 2002, that you then retired and lived in the property from August 2002 to June 2004. You then go on to say that the property was let from July 2002 to July 2011 and this results in an overlap. Presumably this is a typo and you mean from July 2004 to July 2011? Also, what happened with the property between the date of acquisition and the date it was first let - presumably it was empty and not occupied as your main residence?

If my two assumptions above are correct, you therefore have the following:

June 00 - August 01 = 15 months vacant
September 01 - July 02 = 11 months let
August 02 - June 04 = 23 months occupied
July 04 - July 11 = 85 months let
August 11 - November 11 = 4 months vacant

Total period of ownership = 138 months
PPR qualification = 59 months (23 months of actual occupation + last 36 months)

PPR exemption = £85,000 / 138 * 59 = £36,340
Lettings relief = £36,340

Total gain = £85,000 - £36,340 - £36,340 = £12,320

If the property is jointly owned between two individuals (you make references to "we" so I presume this is the case), then as stated by Clatpon the annual exemption from capital gains tax will swallow up this gain and there will be no tax to pay.

I hope this helps.

Best wishes

Paul

Thanks for your contribution

No accident that we both agree there is no tax payable; it's often the case for relatively low value homes that have a period of principal private residence then the net cgt is either very low or zero.

A few arithmetic errors in my calculations (as pre-warned) plus a difference of assumptions .. you assume sale in Novemebr 2011 whilst I assume sale in April 2012, plus a few other things


anyway, welcome to the board, a very valuable addition

BlueVinney

Glad I can sell it without losing out. I'd thought that all capital gains were now taxed at flat rate.

Thanks for both putting me on the straight and narrow.