Capital Gains Tax on house sale

MOGGYMALONE

If you own two houses (one is our current residence and the other was bought before marriage) and you sell one of the properties, do you have to pay Capital Gains Tax on that house sale?

Moggy

pjclar02

Hello Moggy

It depends on lots of factors. Presumably one of you lived in the house bought before marriage as your main residence, and then you moved in together when you were married? Was the other property then let out? You can only have one "principal private residence" for capital gains tax purposes at any one time - so if you have sold the house that you no longer live in, then this may be liable to Capital Gains Tax. However, please can you post up the following details:

Date of purchase of each property
Dates you lived in each property
Cost of each property
Which property is being sold and for how much
Has the house been let out whilst you have not been living there

Armed with this information we should be able to advise on any tax implications.

Best wishes

MOGGYMALONE

Hi there, ok its a bit complicated but here goes.
My house was purchased in 1995 and its current value is about £85,000 (its not on the market yet). I lived there with my mother who died in 2004. I had moved out from 1998. She lived in my house rent free when i moved out.

My husband bought his house about that same time in 1995 before we had even met and its current value is probably about £120,000. So we got married and moved in together around 1998 as work was being done on his property between 95-98.

I have only started renting out my house in the past few months (its just been lain empty since 2004) so pay tax on that but in the future I'm wondering how i can avoid paying capital gains tax on my original property so that we can sell both houses and have a bigger property and no mortgage.

Seems unfair to me to pay tax on my house cuz i already paid tax on my earnings to buy the thing in the first place.
Moggy

CLAPTON

what was the purchase price of your house
whose name was on the deeds

you are potentially liable to pay cgt on the profit on the sale less certain reliefs

MOGGYMALONE

Hi there, my sole name is on the deeds and paid about £24,000 for it (I know it was a bargain! ) so does that mean i am liable for tax on the difference between what i purchased it for and what it sells at? and what rate is that at?

Does that even apply if I am putting the money back into a property...i think i should have sold it.

Maybe i could get a divorce instead lol

CLAPTON

no, a divorce won't help


it works a bit like this
it needs to be worked in months rather than years but the principles apply

period of ownership is 16 years

the gain is 85,000 - 24,000 less buy/sell and costs of improvement (not maintenance) say 2,000

so gain is 59,000

now you are exempt for the period when you actually lived there and the last three years so in your case 3+3 = 6 years

ie exempt of 6/16 x 59000 = 22125

so net gain is 36,875

and you have a 10,100 cgt allowance

so taxable gain is 26,775

now you pay tax at 18% or 28% depending upon your earned income so somewhere between 4,819 and 7,497

MOGGYMALONE

WOW :O thats amazing i thought i had to pay about 40% of the profit i made. I'm not sure if its wiser in the long term to just sell the rental and move into a place with more land or not but had always been put off by the fact of paying cgt but maybe now i should do my sums and rethink this. Thanks Clapton

CLAPTON

just realised that I have said the cgt allowance was 10,100 in fact it is a bit more it's 10,600

ceeforcat

Excellent as always Clapton but would lettings relief of 22125 also be due or is there some sort of restriction related to the length of the letting?

MOGGYMALONE

Hi there, i wasn't aware there was such a thing as lettings relief? what does that mean? I have only been letting the property for about 6 months and I am doing self assessment tax return for that so does that make a difference?

Thanks for all your help folks
moggy

CLAPTON

in principle letting relief is available but as I understand you, the property has only just been let and so would overlap with the 'last three years' relief so there would be no additional relief