Capital Gains tax - will I have to pay any?

Oxid8uk

Hello.

Understanding tax isn't one of my strong points so would be grateful if anyone could help.

I bought a property in 2005 with my partner at the time. In 2007 we split up and I bought him out by remortgaging and a transfer of equity. In 2011 I moved out and rented the property out and bought another house with my new partner.

My tenant has been there for over 2 years now and I am looking to sell the property next year (my consent to let expires [3 years] and I would like the equity to help fund an extension on my current home).

I know that I would be liable for CGT after renting the property out for 3 years or more (I will be giving my tenant notice in advance of the consent to let expiring but by the time I have the property on the market I wouldn't have been resident there for over 3 years) but wondered if I would actually have to pay anything based on the following:

2005 bought for 85k, mortgage of 73k.
2007 bought ex out at valuation of 121k (after renovation and increasing market) mortgage of 98k.
2011 value estimated at 110k. I moved out, tenant moved in. Mortgage remaining 92k.
2014 value estimated at 112k based on recent sold prices for similar properties. Estimated mortgage remaining 88k.

So would the CG be worked out on how much I bought the property for in 2005 or how much I bought my ex out for in 2007? Or on the estimated valuation at at the time I rented it out in 2011? And do the mortgage amounts have any bearing on the amount of CGT I might have to pay?

Thanks in advance.

tim123456789

Oxid8uk wrote: »

Hello.


So would the CG be worked out on how much I bought the property for in 2005 or how much I bought my ex out for in 2007? Or on the estimated valuation at at the time I rented it out in 2011? And do the mortgage amounts have any bearing on the amount of CGT I might have to pay?

Thanks in advance.

Q1 - dunno, tough question that one

Q2 - No

Q3 - No

chucknorris

You will not be liable for any capital gains tax because as well as the pro rata period of when you actually lived in the property you also get the last 3 years as well. The last 3 years obviously absorbs all of the time that the property was let, so no tax will be payable.

EDIT: See example 9 on page 7 of the link:

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

00ec25

were you legally married?
i will assume it was a joint tenancy (ie 50/50)?

if yes then your buy out in 2007 means legally you acquired it at the original 2005 price 85k since spouses inherit at the partner's original cost for CGt purposes

if no then you currently have a property that cost you (85 x 50%) + (121x50%) = 103k because you effectively bought it in two unconnected installments

you seem to understand the 3 year rule and so if you sell up in 2013 you will not have any CGT liability because it is exempt 2005 - 2010 as main residence and then also exempt 2010 - 2013 under 3 year rule

obviously as CGT period must be measured in months there may be a point in 2013 where you go beyond the final 36 months and become liable, in that case:

a) you can claim letting relief ; and
b) you have a 10,900 personal allowance on top

it will be a long time before you have to pay CGT

Oxid8uk

00ec25 wrote: »

were you legally married?
i will assume it was a joint tenancy (ie 50/50)?

When we bought the property we were not married but did marry a year later. And yes it was joint tenancy. How does that affect the calculations?

00ec25 wrote: »

a) you can claim letting relief ; and
b) you have a 10,900 personal allowance on top

it will be a long time before you have to pay CGT

So is the personal allowance in addition to my tax allowance through my employment?

chucknorris

Oxid8uk wrote: »

So is the personal allowance in addition to my tax allowance through my employment?

Yes it is an additional specific allowance for capital gains tax.