tax [position in living in my own rented property

mumhancox · 21 February 2007 at 12:43PM

Hi I currently own a couple of houses but am aware if I sell any of them I have to pay capital gains tax not nice. What happens if I sell my own house, move into one that I have rented out for last five years then live in it for say two years and then sell. Am I liable to capital gains and secondly how would the tax man know, cause when I have sold houses I have lived in before all solicitor asks for as proff of living is utility and passport. I would use the procceds from sale of my own house to pay of mortgage so no third party. Reason I want to do this is hubby is not in best of health and although we are both late 40s we would like to retire, then travel in motorhome. This way we have capital in bank no mortgage and income from other rental properties for monthly income, When eventually we return when his health is too bad we could buy retirement bungalow, hence question about sale of rented house. Only bind is tax man.

bionic_banjo · 21 February 2007 at 1:36PM

Not sure but I think up to 5 years of letting out, you have to live in a house you have rented out again for at least 6 months to avoid paying capital gains - only from hearsay. If you have rented out the houses using an estate agent or similar then the Inland revenue (IR)will already know about the lettings and will be sending you the self assessment tax forms each year for you to fill in about your property business. If you have been letting out the houses yourself, then unless you have declared the lettings to the Inland Revenue yourself using self assessment forms - then they will probably not know that you are letting the houses out and taking an income - so the capital gains 'clock' will not have started. .
BUT WARNING if you have not told the IR about the income/ letting- well they can come after you and seek interest on any tax that is due.
For this reason Id get some advice from a tax adviser, quite often they are 'retired' IR staff and are very helpful. They will be able to do the sums for you and may be able to invent a tax vehicle so you minimise what you pay.

silvercar · 21 February 2007 at 2:09PM

if you live in a home as your principal private residence you get relief from CGT for the time you live in it and the last 3 years of ownership. So in your example, if you sell in 2 years time having owned it for 7. you will get relief on 3/7ths of the profit you make on the sale. Add in to the equation a bit of taper relief and your CGT allowance of £8,800 each and you may find the tax bill smaller than you first thought.

mumhancox · 21 February 2007 at 2:19PM

thanks you both have given me alot to think about and have have answered my questions. but not sure if silvercar has maths right as surely you are saying relief is for 2 years i live there and 3 years prior thats 5 in total over 7 or am i being bit think (have got a cold)

silvercar · 21 February 2007 at 2:46PM

relief is for the last 3 years plus any other time you have lived in it, so you would have an overlap as the 2 years you live in it would be within the last 3 years of ownership.

prudryden · 21 February 2007 at 2:51PM

Silver - What happens to the maintenance and repair expenses that you used to deduct from income taxes in the rentable years? Is there any chance they may be reclaimed by the Inland Revenue?