CGT - help!

topcatz1

Hi,

We are trying to work out whether we should sell our property now or rent it out and buy somewhere else but are unclear on the CGT liabilities.

My wife before we were married purchased a 35% share in a shared ownership property worth 285k in 2008 (sole owner and occupant).
In 2010 I moved into the property. In 2012 we jointly staircased and bought the remaining 65% share of the property to own 100%
The property was valued at 315k.

We are now confident that the property is worth 480-500k (significantly undervalued last year). We are thinking of renting the property out and buying somewhere else. If we do that and sell the property in the future are we going to have a significant CGT expense and would it be better to sell up now?

For example if we sold it in 2016 versus 2017 or 2018 and the property was worth 600k what would our CGT expense roughly be?

I’m aware that we are exempt from CGT for the years we have lived in the property and for the last 3 years of ownership.

Thanks for your help

AlexMac

My reading of Which
http://www.which.co.uk/money/tax/guides/capital-gains-tax-explained/capital-gains-tax-and-property/
and HMRC websites is that if you moved out, let it out, then sold in the next three years there'd be no CGT liability irrespective of gain.

Longer term, you'd still have substantial reliefs- and of course- you only pay CGT if you make a gain over the £10.6k per person in-year exemption.

But surely there are other considerations; for example, if you really want to get into being a Landlord, is a £500k+ property the best one to start with? Would it achieve the £2.5k+ per month rent which you'd really expect to get 6% gross yield on value (which you probably would get or exceed if, for example, you let out two or three 2-bed flats each worth £150-£170k at a more achievable £750-850 per month)?

And your forecast that the house could be worth £100k more in 4-5 years seems optimistic; that assumes 5% p.a. uplift, which has simply not been the case in the past 5-6 years. Surely even 3% pa is very optimistic? But if you confident that you are in the kind of upmarket area where house price inflation is likely to run well ahead of the national average, it might be better to hang on to your existing place.

For example where we live (in a very desirable bit of London) Zoopla says local inflation is increasing and now running at over 4% in the past 12 months- but that prices have only gone up 12% in the past 5 years- so that a place the same as yours would be only worth about £540-560k by 2018....if you were lucky?