Capital Gains Tax

Peanut777

Hi - I bought a second house back in June 2006 and moved into it. I rented out the first house. Then I decided it to sell the second house in late 2007 and put it on the market but moved back into the original house from Oct 2007 onwards. I rented out the second house from Nov 2007 until April 2008 until it was sold. I sold the first house as well last August and haven't bought another house yet (but intend to). Will I be liable for CGT? Many thanks

holly_hobby

Re pch of a new property as you home ... you are not liable to CGT on sale of this as your primary residence (if this has always been the case from pch to sale) - you are entitled to full PRR relief.

If you move out and rent (or don't rent), and as you probably are already aware, there are various allowances, reliefs, exemptions and costings that may be applied to any gain on disposal (including the last 36 mths of ownership being excluded from any CGT calc).

If you pch a property and never reside in it pre sale, you only have your annual unused personal CGT exemption limit (along with permitted improvement/pch & disposal costs, any registered CGT losses) available to offset against any gain on disposal.

If you initially don't reside, but then later use it for a period as your primary residence during any time of ownership pre sale, that residency period will be treated under PRR regs, and exempt from the calcs (but you won't qualify for lettings relief or exlusion of the last 36 mths of ownership for any calc) .

Above are very brief details, speak to your tax practitoner for more depth and how the various residency scenerios will affect CGT exposure.

Hope this helps

Holly

CLAPTON

Peanut777 wrote: »

Hi - I bought a second house back in June 2006 and moved into it. I rented out the first house. Then I decided it to sell the second house in late 2007 and put it on the market but moved back into the original house from Oct 2007 onwards. I rented out the second house from Nov 2007 until April 2008 until it was sold. I sold the first house as well last August and haven't bought another house yet (but intend to). Will I be liable for CGT? Many thanks

you have had 2 houses

as you lived in the second house as your principal residence from june 2006 to oct 2007; then then rented in out until april when you sold it
There is no cgt because it had been your PPR so you get the last 36 month allowance.

presumably you declared the rent to HMRC


the first house you lived in before june 2006 and then rented it out and then moved back in oct 2007 and sold in august 2012

assuming the house is not too expensive then letting relief will cover the period it was rented out so no cgt payable

presumably you declared the rental income to HMRC

Peanut777

Sorry - just to clarify - house no 1 has always been my main residence apart from the time that I was in house no 2 (June 2006 when I purchased it until Oct 2007) and I only owned house no 2 for about 21 or 22 months ....

From about Nov 2007 until it was sold in March/April 2008 I had tenants in it .....

Peanut777

sorry Clapton - I was typing while you were posting on this. Actually no I didn't declare the income as it only just covered the mortgages .....(if that)

holly_hobby

Rental income net of deductions (even if it gives a loss) must be declared to HMRC, either via annual self assessment or HMRC PAYE adjustment (if annual rent is less than £2400 and you receive PAYE income).

You can do this retrospectively, pay any due tax (at your highest rate) and hope for no fine. If you don't do this, then you'll be cited and pursued by HMRC for tax evasion under non-reporting, which is a criminal offence.

Don't be afraid to tell them now, although they may be a bit sniffy and say you should really have known that any income, no matter how small, is exposed to tax (unless your total income was under your PA) - the point is don't let them find you, go to them before this rears its head (which it will sooner or later).

Hope this helps

Holly

CLAPTON

Peanut777 wrote: »

sorry Clapton - I was typing while you were posting on this. Actually no I didn't declare the income as it only just covered the mortgages .....(if that)

you need to tell HMRC about the income even if no tax

do note that you can only offset the INTEREST on your mortgage against rental income and NOT the actual mortgage payments
but there are other things you can offset so you may well owe no tax.