Question on house sale and CGT

newhigherrate

Hi, hoping someone knows whether I would be liable to CGT

I lived in one property for close to 20 years (my primary residence I think IR call it on paper) and bought and moved just under 2 years ago into a second house (paying two mortgages) very close to my remaining parent to help with their long term care needs - this had to be done quickly so I had no time to do any refurb to sell my original house. My old house has remained empty and I only had the time to start the refurb projects three months ago following the death of the person I helped care for and less travel with work. I do now want to sell my old house to pay down the mortgage on the new one, will I be liable for CGT on part of the proceeds, considering it was my primary residence for a logn time and I have not rented it out in the unoccupied period?.

Yorkie1

I don't think the fact it's remained unrented is relevant.

As I understand it, because it's less than 3 years since it was your main residence, CGT won't apply.

00ec25

yes as stated you fall into the 3 year rule - you have 36 months from the date you moved to sell what was once your private residence (used to be called principal private residence) and you will remain 100% exempt from CGT. Take longer than 36 months and you will incur CGT based on the % of time measured in months (not years) and applied to the total gain less exemptions.
for the sake of an example lets say you take another 13 months to do the work having moved out 24 months ago - your CGT position would be :

total period of ownership 240 (lived in) + 24(moved out) +13 (period taken to do work) = 277 months
exempt period : period lived in 240 months + last 36 months of ownership = 276 months exempt
CGT liable period 1/277th

say your total gain (selling price less original purchase price) was £500,000 then your CGT liability would be 500,000 x 1/277 = £1,805 but inreality you would pay nothing because you are entitled to a tax free gain of £10,600 in any one tax year so there is no way you would actually end up paying CGt even though in this example you would be liable for CGT - liability and paying are 2 different things

all explained on HMRC helpsheet HS 283 - see here

(BTW - I assume you have dealt with the Council Tax position - empty home exemption period followed by second home discount?)

Gonzo33

Interesting enough I was told by the IR that as I let my property I get the last 3 years as though I resided in the property and 2 years lettings relief, so 5 years in total. So sometimes having let the property is better for you in terms of tax relief.

newhigherrate

Thanks for the quick replies - Yes, I have been stuffed by the council tax on the two properties though in the last year, you used to get 6 months free each year for an empty house in the old borough council, this is now a one-off six month period now. Also, for those getting single occupancy discount it's worse, if you have a second house, you have to pay the full amount on the second empty property.

00ec25

Gonzo33 wrote: »

Interesting enough I was told by the IR that as I let my property I get the last 3 years as though I resided in the property and 2 years lettings relief, so 5 years in total. So sometimes having let the property is better for you in terms of tax relief.

you are correct but your explanation is too simple to be used as advice
if you let a property which was once your main home then in addition to the 36 months you get lettings relief however this is capped at the lower of:
either: the period it was your main residence
or: the period it was let for
or: £40,000
remember its the lowest of the above
see example at #3
https://forums.moneysavingexpert.com/discussion/1923463

mirrorcarp_2

This is interesting,if someone out there would like to help me i would be very grateful too.

In 1997 i bought a house for £56500 and lived there with my wife until august 2006. We then purchased another property and rented our old house out.
We are thinking of selling it now and its current value is £160 000.

Two questions,would i be liable for any CGT if i sold it now and if not how long would i be able to rent it out for before it became likely that i would have to pay any CGT.
I have a £103 000 mortgage on the rented property and it is owned jointly by myself and my wife.

Sorry if im being a bit thick but the tax laws do my head in.

pjcox2005

This is HMRC's page on it http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

Effectively the calculation would look a little something like this (although needs to be calculated more precisley i,e, not just to rough years):

Sale price - 160,000
less purchase price - (56,500) (you can also take of any incidental costs of acquisition).

Chargeable gain - 103,500

If you had lived there all you life, and had no other property it would be exempt from tax via principal private residence.

As that's not the case, you calculate the years that were exempt and apply this as a percentage of the total years owned to work out the remainder which could be taxable.

So for you: period from 1997 to 2006 - exempt 9 years (assuming no other property).

For the remainder the website states:
Letting all or part of your home

If you've let out all or part of your home you may not get full Private Residence Relief when you sell or dispose of it, but you may get another relief known as 'Letting Relief'.
The maximum amount of Letting Relief due is the lower of:

• £40,000
• the amount of Private Residence Relief due
• the amount of gain you've made on the let part of the property

In your case the lower would be the private residence relief due being the chargeable gain divided by 15 (total number of years) times 5 (years rented) thereby being 34,500. So the five years of renting are exempt.

After this year, it appears the relief would be capped at £40,000 assuming the house gained in value at the same rent (debateable).

You then get the final 3 years as private residence relief even if you don't live there (as long as you did at some point in time).

As such, I'd suggest that the full amount of relief would be available (15/15years) meaning no chargeable gain would arise.



At a guess (as it depends on property prices), you could hold it for another 4 years without a tax liability arising. If a gain did arise, then you would be able to use both your own and your wife's tax free allowance c.£10k per individual to offset that gain assuming you haven't used it for anything else in the year.


Hopefully that post makes some sort of sense but difficult to do on a message board!!

mirrorcarp_2

Thanks for that. I had to read that a few times but the penny has dropped.

Gain £103500 divided by 15(total years of ownership) = £6900

£6900 x 5 (years property rented) = £34500 which is lower than £40000 so no tax to pay.

Happy Days

Gonzo33

00ec25 wrote: »

you are correct but your explanation is too simple to be used as advice
if you let a property which was once your main home then in addition to the 36 months you get lettings relief however this is capped at the lower of:
either: the period it was your main residence
or: the period it was let for
or: £40,000
remember its the lowest of the above
see example at #3
https://forums.moneysavingexpert.com/discussion/1923463

They didn't tell me that. I am glad I posted here now!