Capital Gains Tax

Empty_pockets

Hi,

Looking to buy a property with my other half later this year.

We each have our own mortgaged properties. Neither of these will be sold.
Hers will be let out, likely managed by an estate agent.
Mine will be kept private and used.

Could somebody explain if there would be any extra tax payable? I'm sure I saw an article in The Telegraph lately say something along the lines of requiring a certain amount of time spent living in each property could reduce the tax due?

Yorkie1

There will be income tax payable on the rental income of your OH's property.

Upon sale of any property, there will be CGT potentially payable unless the property is sold within 3 years of it ceasing to be your principal private residence. From your post it looks as though you are wondering whether you can have both your existing and your new properties as your PPR so as to avoid CGT on both properties. I do not think that this is possible.

Empty_pockets

So the tax is payable only on sale.

Quick search shows CGT to be 28% but you do get a tax free allowance. That about right?

CLAPTON

not enough details

firstly the property that will be rented out
a. income tax will be payable on the profit from renting i.e. the difference between the rental income and allowable expenses
allowable expenses include the interest payments on the mortgage, letting costs, gas cert costs, if furnished a 10% wear and tear allowance etc etc

b. capital gains tax is payable on the gain in value of the property; however there are several reliefs that often reduce this to zero
- the gain is assessed as the difference between purchase price and selling price less buying and selling cost and any capital improvements
-the period when it was owner occupied is exempt
-the last three years of ownership is exempt
-there is letting relief up to 40,000
-you have a cgt allowance of 10,600

then if there is any gain left you pay at between 18% and 28% depending upon your other income


the other property is less clear
how will it be used?

Empty_pockets

Ahh, sounds complex even for the simpler one.

The other property will be used part time i.e when I need to be in the area and when my kids (seperated) are wanting to visit/stay over. It will be furnished.

I will continue to pay the (relatively small) mortgage and the utility bills/council tax.

For what i'd get for it, it's not worth selling.

CLAPTON

Empty_pockets wrote: »

Ahh, sounds complex even for the simpler one.

The other property will be used part time i.e when I need to be in the area and when my kids (seperated) are wanting to visit/stay over. It will be furnished.

I will continue to pay the (relatively small) mortgage and the utility bills/council tax.

For what i'd get for it, it's not worth selling.

the first isn't simpler but the minor complexity means you probably won't pay any cgt
if you wish to say when you bought it and for what price and how much it is worth now I can show you how cgt is actually worked out

the second one : usually it is only possible to have one principal private residence PPR that is cgt free on sale
so most of us pay no cgt when we sell our property because we are totally exempt due to it being our PPR

however, like MPs some people can genuinely have two homes;

usual example is some-one living in a property in a city during the week and then lving in their country home at weekends

here HMRC allow you to nominate which one you want considered your PPR at any time; you are allowed to change the nomination which can mitigate cgt on sale; to do this you must inform HMRC which you want initially considered your PPR within 2 years of acquisition of the second property- no rush then

Empty_pockets

The OH's property was bought for about £120K and is currently worth about £130K. 1 bed terrace.

Thanks for the info, even I can work out the cgt will be minimal if any.

Mine was bought for £42K and now worth about £115K. At moving it will be £115K and I doubt it will raise much in value over the next 5 years or so.

CLAPTON

you haven't said when the properties were bought

just for illustration lets take your property

lets suppose you bought in six years ago and sell it in five years for 125,000 net of costs

gain is 125k - 42k = 83,000

period of ownersship is 6+5 = 11 years (this needs to be done in months really but it will show how it works)

1. you are exempt for your period of personal occupation PPR = 6 years plus last 3 years so exempt period = 9 years

so exempt amount is 83,000 x 9 /11 = 67909
so net gain is now 15,091

you have a 10,600 allowance
so taxable gain is 4490 and so tax will be between 4490 x 18% and 4490 x 28% i.e. 808 and 1,256

Note ; the gain is value is assumed to be even over the years and the cost when you move isn't relevant; only the buying and eventual selling price


with your OH's property the calculation would be different because she would also get letting relief which is the less of PPR, the period let or 40,000

getmore4less

You might want to look at a property shuffle this can reset purchase values if all are joint owned that double the allowance for the year of sale.

If there are grown up kids there are other options to spread the potential tax around llowances.


Also look at getting mortgage interest relief on full value of the let home across all mortgages(need advise on getting that structured right).

John_Pierpoint

......and of course if you should ever find yourself selling two houses that appear to incur CGT, be aware that the £10,600 is an annual nil rate band for all assets sold in that particular tax year, so sell one house on 5th April and the second one on the 6th of April, if you get my drift.

jimmo

Nobody seems to have yet asked whether your OH is your spouse (or Civil Partner).
Married couples can have only one main residence between them. Unmarried couples can have one each so it could be important.