Confused re Capital Gains Tax

examplesno1fan

Morning everyone. I wonder if someone would be kind enough to clarify something for me? Last year my dad who was the main carer for my mum passed away. I gave up my job and moved North to look after mum 24/7 she has Alzheimer's and is disabled. I let my house in London to my friend at a reduced rent enough to cover my outgoings Loan, cc etc. In the past year I have been struggling financially and was going to sell my house but have decided against this for the time being and decided to have it property managed so I have more income to reduce my debts. A couple of weeks ago I informed my friend of my plans and have given her until the end of August to vacate the property. Although I let to a friend everything was done properly Landlords certificate etc and everything declared on a recent self assessment form. House was lived in by me from 2006- June 2011. Although I've tried to read up on it - I don't understand the 36 month rule regarding Capital Gains Tax. Does it mean if I sell my house before June 2014 I will not be liable for CGT?

eddtheduck

Essentially, yes it does.

The 36 month rule applies to the last 36 months you own the property - so if you sell it before June 2014 then you would be exempt from CGT, but if you were to move back in and your period of non-residence (or part of it) then fell outside the last 36 months of ownership, you would potentially be liable for CGT.

Having said that, there is something called 'letting relief' which could mean that you still might not be liable for CGT even if you did move back in.

fluffymuffy

You're only liable for CGT on the increase in value during the time it's not your main residence. And so even if there were no rules about some months where it doesn't apply, it wouldn't be a lot of money anyway, and even then you have a CGT allowance of £10,600 on which you won't pay tax.

So if your house went up in value by £10,000 during the time you were not living there you wouldn't have to pay any CGT.

examplesno1fan

Thank you very much for your replies I feel much better I had visions of paying thousands of pounds to the Tax man. I have a much better understanding of everything now

00ec25

the detailed position is

1. sell by June 2o14 and yes it is 100% exempt due to its entire ownership period falling within a) period of occupation as main (or only) home 2006 - june 2011 plus b) the "deemed occupany" period of the last 36 months before it is sold
the "3 year" rule means you can do anything with the property (leave empty, let out, keep and use as second home) in that period and it remains exempt

2. sell after June 2014 (CGT works in months not years) and you also get letting relief because it was once youtr main home. This relief is capped at a maximum of £40,000 so you can have a gain of up to that much and still not end up paying any tax (the gain is the difference between the original purchase price in 2006 and what you sell it for, it is not the gain since you moved out)

3. if it is not fully exempt or covered by letting relief the remaining taxable gain can also be reduced further by your personal allowannce in the year in which you sell it - for 12/13 this is currently £10,600,
so sell after June 2014 and the total gain would need to be more than £50,600 before you would have to pay any CGT