Capital Gains - Simple terms please

Boobydoo

Morning all.

I need a simple explanation as I have no idea about capital gains.

Here is the situation: My Husband and I have found a property which we would like to move into. The chap who owns it I believe is retired and he has another property to move into which is his Father's.

The property is £250,000, but we would like to rent for a while whilst we gather together figures, payslips, bank statements and get our figures a bit better at work.

The owner is very happy to do a deal, but he's worried about Capital Gains - what exactly does this mean with regards to the above situation?

Sorry for sounding so thick!

antrobus

It means that at the point that the owner rents out the property to you it (effectively) becomes an asset of his rental business, and thus liable to CGT on sale. However if the owner is currently living in the property and only intends to rent to you for a short period, the chances of him actually having to pay any CGT on the sale of the property to you a few months later is absolutely nil.

CLAPTON

capital gains tax applies to people who dispose of an asset (say a property) for more than they bought it for.

however if the property is one that you lived in then it is exempt for cgt (called principal private residence PPR relief) so normal people don't pay any tax when they buy a new property and sell their old one.

However if some-one has two properties, one to live in and the other let out then potentially they may be liable to pay cgt on the rented house when it is sold.

One needs to know the full details about the situation to know what would appply here

but e.g. if the vendor lives in the house and has just bought a new one to move into then he can keep the two houses for three years before cgt would apply.

WHA

As Antrobus has said, the chances of there being a CGT liability are almost certainly zero. If the owner is living in it as his principal home and has never previously rented it out, they will have the final 3 years of owneship as exempt and also have lettings relief. They are probably worrying over nothing and all will be fine once they've checked the CGT rules.

Boobydoo

Thank you all.

The owner basically looks after his Father from 6am to 10pm at a property just up the road. He then sleeps at the property at night, I guess just to keep it ticking over etc.

From what we were told the property that his Father lives at will be handed over to him when he passes away.