Cgt

pinklady21

Hello
My husband and I have three properties between us. One is our current home, which is in my sole name.
The other two are our previous homes, and are now let out.

Question is - when the time comes to sell the previous homes, there will be a capital gain. How do we calculate this? and is there any way to legally mitigate the tax liability?

More details as follows:
Property 1 (mine) - purchased 1999 price £41k
Probably around 50K spent on improvements since owned.
Was my principal home until I moved to current property in 2011.
Let since 2012. Value at time let 250k. Current value same.

Property 2 - purchased 1992 price 40k
Husband's Principal home until we moved to current property in 2011.
Let since 2012. Value at time let £170. Current value around 170k

I have heard something about notifying HMRC when you buy a second home to tell them which property you wish to consider your principal home for CGT.
Does this still apply after the property has been let out?
My husband only has one property in his sole name, as our current home is mine alone.

Sorry if this sounds rather complex!
All assistance much appreciated.
Kind regards

CLAPTON

depends when you sell but if you sell within 3 years of when you moved out then NO tax

if you sell after 3 years then probably no tax for a number of years but you would need to do a calculation.

notifying HMRC is not relevant in your situation as it doesn't apply once let (as it is then clearly NOT your principal residence)

agrinnall

You can't have a principal home that you don't live in, so I would say where you live now is the principal home for both of you.

As far as CGT is concerned, you can sell up to 3 years after it stops becoming your home without being liable for CGT. After that then CGT will be due on the increse in value from the date on which the property ceased to become your home. If there's been no increase, or the increase is less than the CGT allowance (currently £10,600). How much you'd have to pay depends on your other income.

I thought that you could carry forward your CGT allowance from the previous year but I can't see anything obvious about that on the HMRC CGT pages; perhaps someone more knowledgable than me can enlighten us.

CLAPTON

agrinnall wrote: »

You can't have a principal home that you don't live in, so I would say where you live now is the principal home for both of you.

As far as CGT is concerned, you can sell up to 3 years after it stops becoming your home without being liable for CGT. After that then CGT will be due on the increse in value from the date on which the property ceased to become your home. If there's been no increase, or the increase is less than the CGT allowance (currently £10,600). How much you'd have to pay depends on your other income.

I thought that you could carry forward your CGT allowance from the previous year but I can't see anything obvious about that on the HMRC CGT pages; perhaps someone more knowledgable than me can enlighten us.

no you can't carry forward unused cgt allowance


also there is a letting allowance (max of 40k)

and the cgt allowance is now 10,900

and as they are now married they could chose to gift half the property to the other and benefit from two cgt allowances (as long as they don't sell both properties in the same tax year)

jimmo

In its simplest terms and, assuming that you both occupied your former homes unmarried (to each other), you each have 3 years from the date of moving out to sell your former homes free of CGT.

There are all sorts of opportunities to stretch beyond the 3 years if you need or want to but that requires a lot more attention to detail and care and I am afraid the advice already posted here illustrates that only too well.

agrinnall wrote: »

After that then CGT will be due on the increse in value from the date on which the property ceased to become your home.

The capital gain is calculated by reference to the purchase plus improvement costs. The gain is then apportioned between exempt periods and non-exempt periods. The value of the property at the date it ceased to be your home has absolutely nothing to do with it.

CLAPTON wrote: »

as they are now married they could chose to gift half the property to the other and benefit from two cgt allowances (as long as they don't sell both properties in the same tax year)

Transferring part ownership of a former home to your spouse requires you to balance the additional cgt allowance against the sacrifice of private residence relief.

As a general rule it could well be a good idea for a transfer to take place whilst the couple are living in a property but a bad idea if they are living somewhere else.

I still believe this is the best guide available.

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

pinklady21

Many thanks for all the prompt replies. Most helpful.
I was a bit confused about the three years private residence relief and whether it still applies even where the property has been let out during the three year period.
It would appear from your responses that we can still claim the exemption regardless.

One more question - Could we (or I) decide to go back and live in my old property at some point during the 3 years of exemption? Would this have the effect of extending the CGT exemption by another three years?

This does sound like a lot of faff, though and I think, for simplicity, we will try and sell the properties within the three year period.
Just depends on market conditions, and when the tenants decide to move on.....
Thanks again!

CLAPTON

pinklady21 wrote: »

Many thanks for all the prompt replies. Most helpful.
I was a bit confused about the three years private residence relief and whether it still applies even where the property has been let out during the three year period.
It would appear from your responses that we can still claim the exemption regardless.

One more question - Could we (or I) decide to go back and live in my old property at some point during the 3 years of exemption? Would this have the effect of extending the CGT exemption by another three years?

This does sound like a lot of faff, though and I think, for simplicity, we will try and sell the properties within the three year period.
Just depends on market conditions, and when the tenants decide to move on.....
Thanks again!

the three years is the last three years before sale

so you never get several lots of three years; only the last three years

so it's almost always the case, that you have no cgt to pay if you sell within 3 years of leaving the property
however, as you are letting it out and so are eligible for letting relief it may be many years before you actually have to pay any tax.



also note Jimmo's correction of my previous post: in your situation it would be unsuitable to transfer any equity to your husband (one really shouldn't post after a good dinner and bottle of wine)

also
when did you get married?

pinklady21

Thanks Clapton. We got married in 2010, but being somewhat "unorthodox", we did not live together "properly" until we moved in to our current home over a year later.
Both our houses were kept on as our principal homes.
However, going by the HMRC note, it would appear that as a married couple we can only have 1 principle home.
I wonder how HMRC would view things? Would they say that the date of our marriage in 2010 would be the date they assume we lived together? And in which property?
Interesting conundrum!

Just done the sums - a wee bit of head scratching, but, based on what I paid for it, what I have put into it in improvements and what I think my property is worth - turns out you are quite correct, having owned for about 23 years, lived in it for 21 years and let for 2 years (say), I won't have any CGT to pay.
(Unless of course house prices decide to rocket of course.....)
If only!!
I think we will be trying to sell the properties though, and certainly within three years of leaving them.

Thanks
Cheerio

CLAPTON

a married couple can have only one PPR

in 2010 when you got married you could have nominated which house you wished to be your (joint) PPR; however you must do that within 2 years so it's too late now.
HMRC will decide now based on the facts; I don't know how they do that in your sort of situation.


I'm a bit confused about your numbers: if you bought in 1999 you have only owned that for 14 years; at the moment it would be cgt free because of the 3 year rules from 2010 (year of marriage)

pinklady21

Sorry - typo on the date - I actually bought the property in 1991, not 1999 which is what I typed in my OP. Apologies for confusion, and thanks for picking up on it!

Thanks for the info on the PRR too much appreciated.