Letting relief and Capital Gains Tax

tygr

Could someone please help me with calculating my potential CGT liability?

I own a flat, bought in August 2001 and lived in as my home.

In May 2010, I moved into rented accommodation and the property was vacant until I let it in October 2010.

I didn't know about notifying HMRC about which was my main residence so I didn't and am now too late to nominate.

My tenants have just given me notice and I'm deciding whether I am better off a) selling b) re-letting or c) moving back in.

I know that the last 36 months before selling are counted as if I lived in the property for CGT and so if I sold tomorrow, there'd be no CGT liability.

What I need to work out is:

1. when will the 36 months be deemed to run from: May or October 2010?

2. What is my CGT liability if I re-let the property for another 12 months say and then sell?

3. Is there any benefit to moving back in temporarily?

Happy to provide whatever other detail is required to help answer my questions. I've just spent the evening reading the HMRC guidance but can't say I've quite wrapped my brain around it yet.

Thank you

CLAPTON

Last 36 months means just that...
i.e. from the date of disposal (I think exchange of contracts but you need to check that)
so if you dispose of it today then the last 36 months goes back to March 2010



you have the followwing reliefs

- the period you actually lived there
- the last 36 months before disposal
- letting relief (max 40,000)
-cgt allowance of 10,600

without knowing the price you paid or its curent value it's impossible to say but probably several years more before any tax was due.

tygr

Oh yeah, no 1 was a stupid question and not really what I meant!

I meant, when will HMRC consider the property stopped being my main residence and so when will I actually become liable for any CGT because my absence ceases to fall entirely within my 36 month relief period - May or October?


And is that significant for tax purposes?


I didn't know about the £10,600 allowance. What does this mean? That I don't pay tax on the first £10k gain or that the first £10,600 of tax isn't payable?


Having vaguely been aware of the 36 month rule, the last 24 hours have shown that there's a lot more to it than I thought.


Thank you.

CLAPTON

it stopped being your residence when you moved out and didn't live there any more

the cgt allowance means you don't pay tax on 10,600 of the net gains after all the other allowances have been deducted.


and by the way there was/is no way you need tell HMRC anything until you sell the property (except of course declare the rental income)

tygr

Yep, been declaring the rental income through self-assessment since 2010-11.

In the period between May and October 2010, I was living in two properties for part of the week each so it might not be quite so black and white. I was working in one part of the country in the middle of the week (in owned home) and living in another part for long weekends (rented home). All utilities and everything stayed in my name until the tenants moved in to my owned home but I did successfully apply for a rebate of Council Tax on my owned home for the period. So that's why I'm wondering if I can argue my main residence stayed the owned home until the tenants moved in. I didn't nominate because I didn't realise I should but I would have nominated the owned home if I'd realised (and maybe should have tried to reclaim Council Tax on the rented property but hey, we live and learn).


Sorry if this is too complicated for a forum thread now. And I'm clearly a novice in all of this.


It might help to give dates and figures.


Property purchased 31 August 2001 - lived in as only home


Rented second property 1 May 2010 - living in both


Tenants moved into subject property 9 October 2010


Capital gain, say £100,000

CLAPTON

firstly 'nomination' is irrelevant to your situation
nomination is relevant if you LIVE in and OWN two or more properties
which is not your situation


if you were living in the property part time then that would normally be your principal private residence PPR;
what exactly did you get a rebate on council tax for? if it was for being empty then it would be difficult to argue it was your PPR without admitting council tax fraud.

however, if you sell today then no tax
as it was your PPR to May 2010 and the last 36 month rule covers you for the period until May 2013


also you only have 6 months empty
as you have owned for 12 years then monthly gain would be
approximateley 100,000 / (12 x12) = about 700 per month so your 6 months is easily covered by the 10,600 allowance

00ec25

As Clapton says the chances of you having to pay CGT for the foreseeable future are slim. As an academic exercise however let's expand it to show the full possibilities given that you thread asks about letting relief but its not been covered yet:

Aug 2001 – May 2010: fully exempt as main residence (PRR - Private Residence Relief) http://www.hmrc.gov.uk/helpsheets/hs283.pdf

On the assumption that you yourself are now a tenant not a lodger (“excluded occupier”), then in May 2010 you acquired a legal interest in another property and so from that date you have an interest in 2 properties so the clock starts ticking for nominating as the cutoff is from an “interest in“. However, as you have identified, you have therefore missed that boat so the question as to which is your “main” home is now based on a test of the facts of your occupation. Your statements are somewhat unusual in that respect as it appears that from May – Oct 2010 you commuted to work from your owned property but spent the weekend in your country rental property. The test of occupation is more than whose name is on the bills but from what you say you may have a reasonable chance of claiming that the owned property remained your main home, the test includes:
- Where is your social life based
- where do you commute to work from
- where would your friends expect to find you if they call/come
- where does your family actually live
- where do the kids go to school
- where do you spend the balance of your time
- where are you registered for on the electoral roll
- where is you post delivered to
- what address do you give for your everyday life and contacts (bank statements,

Once the property is let you cannot nominate it as your main home anyway since a nominate can only apply to a property which is available for you to occupy, clearly a let property is not a second home as you can’t live in it. “Flipping” only works in periods when both properties are not let out

But step back a second and look at the big picture rather than worrying over a few months

If you sold up before May 2013 you would be totally exempt because of the 3 year rule in any case so its pointless discussing the question of May – Oct period
.
If you sell after May 2013 then you are entitled to letting relief which means that until the let period exceeds the PRR period (or the letting relief exceeds £40,000) you will never pay CGT

Do a worked example based on £100k gain
Bought Aug 01 Sold Aug 2021 so ownership period 20 years (240 months)
PRR period Aug 01 – April 10 = 105 months
Final 36 months rule Sept 2019 – Aug 2021 = 36 months

Exempt value 100K x (105+36)/240 = £58,750

Lettings relief
Let period (excl final 36 months) May 2010 – Aug 2019 112 months
Relief value is the lowest of :
A) PRR figure £58,750
Gain in let period 100k x 112/240= 46,666
C) £40,000

Lowest = £40,000

Personal allowance: £10,600

CGT taxable gain calculation:
Gain 100,000 minus PRR 58,750 minus letting relief (capped) £40,000 minus personal allowance 10,600 = 0
So with a 100k gain even if you sold it in 2021 you’d still have zero taxable gain so no CGT to pay

tygr

Thank you! That's exactly the kind of calculation I wanted. I think I'll work on the basis of May anyway for the Council Tax issue alone but I'm pleased that it's largely academic and I don't have to sell it before 1st May or pay thousands of pounds

I can now make a decision based on other factors and exclude the CGT from the mix which is a huge weight off my shoulders.


I'm currently unemployed and this property is my main source of income so there's a lot to consider.


Thanks again.