Tax Query On Selling 2nd Home?

Taff

Morning

Thinking if buying a new home and renting my existing home.

Is it true that If I was to sell my second home in the future I would be taxed heavily.

If this is the case how much tax would I have to pay?

Thanks

richardw

Yes, capital gains tax, how much would the gain be?

Taff

Not sure what the value will be when and if I eventually sell.

As it stands im looking to release equity in current property for deposit on new property. So I would look to take it upto 75% of its value currenty 120k ish.

Thanks

00ec25

One of the more frequent questions on this board!
When you sell a property that you once lived in as your main home after you moved out and started to let it then you are liable for CGT, however, whether you actually end up paying any tax at all depends on a number of factors:

1. CGT is liable at 18% or 28% on only the GAIN in value over the time you owned it. No gain = no tax. The gain is the difference between its selling price and its original purchase price (less EA and legal costs of buying and selling)
2. The gain is assessed over the entire time you owned the property, its value at any other time during your ownership (eg value when you move out and start letting) is utterly irrelevant
3. For the entire time you lived in it as your main home that period is exempt from tax
4. as long as it was once your main home then you are additionally entitled to the final 36 months of its ownership period as exempt from CGT , this applies even if the property is let out during those 36 months
5. If the period it is let out is longer than the final 36 months of ownership then you also get a claim “lettings relief” which can reduce your gain by up to £40,000 depending on exact circumstances
6. When you sell every owner can use their personal allowance (£10,600 at 12/13 rates) to also reduce the gain

The combination of the above may mean that even with a gain the net amount is fully relieved and you end up with zero net taxable gain and so pay no tax even though you are liable for CGT

As with every investment decision do not let the tax tail wag the dog

I suggest you start reading the basics
http://www.hmrc.gov.uk/cgt/intro/basics.htm

eg: says the value is 120 and you bought it for 25k 10 years ago
lived in it 5 years then let it out before selling it 5 years later
exempt period thereofre 5 + 3 = 8 years
so 8/10ths of the 95K gain is exempt leaving 19k liable, but this could easily be covered in full by lettings and personal allowannce leaving nil taxable gain and no tax to pay

so you may not be taxed "heavily" at all

charliexyz

I have been wondering about this too! The summary is very useful, thank you.

Also if the property is jointly owned by a husband and wife, is the lettings relief doubled? Or is it applied on the property?

Taff

Thanks for the comprehensive reply.

If i am employed and self employed (as i will be renting out a property) is the £10,600 12/13 tax allowance for each type of employment or the total allowance for both employed and self employed?

How would it affect the CGT if I purchased at £50,500 and had additional of borrowing of approx 17k. I also intend to remortgage to release the equity for another property?

Thanks

00ec25

charliexyz wrote: »

Also if the property is jointly owned by a husband and wife, is the lettings relief doubled? Or is it applied on the property?

we have had independent taxation in the UK for a long time now so that means if you sell an asset you part own then you account for your share of the gain and claim any allowances you are entitled to against your share, it has nothing to do with the "property"

which is a long winded but more technically correct way of saying "its doubled", because nothing is doubled since you are taxed as a single person not as a married couple (or any other form of co-ownership!) and you will each have to do your own tax return for your own share

00ec25

Taff wrote: »

Thanks for the comprehensive reply.

If i am employed and self employed (as i will be renting out a property) is the £10,600 12/13 tax allowance for each type of employment or the total allowance for both employed and self employed?

How would it affect the CGT if I purchased at £50,500 and had additional of borrowing of approx 17k. I also intend to remortgage to release the equity for another property?

Thanks

employed or self employed status is utterly irrelevant, letting a property is a specific business class on its own and does not technically count as self employed, hence you cannot offset any property related income tax loss against employment or self employment tax liability

mortgage debt is utterly irrelevant - please read the basics link before asking extra questions - you seem to be confusing the CGT allowance with income tax allowance

Taff

Thanks for clearing that up 00ec25 much appreciated.

I did read the basic link provided but I was still confused as you could tell.

Cheers anyway for your time.