CGT on a second property

chris.lewis

Hi,

Could someone please explain how the CGT works on a second property and maybe show how much I would be liable for using the below example:

I bought a flat in Feb 2009 for £125K and I lived there as my main residence until May 2010 (15 months) before renting it until May 2012. I moved back in May 2012 and it has again been my main residence up until now. I am now in the process of buying a house and wish to rent the flat for up to five years. The current value is £160k, estimating that the value in five years will be £170k how much captials gain would I need to pay? Also I have not spent any money improving the flat and probably wont need to in the next five years. Also I am a higher rate tax payer.

Chris

grey_gym_sock

suppose flat sold for £170k in december 2018.

overall gain = £170k - £125k = £45k.

total length of ownership = 9 years 10 months ... i.e. 118 months

PPR applies from february 2009 - may 2010 (15 months), and then from may 2012 - december 2013 (19 months), and also automatically for the last 36 months of ownership (december 2015 - december 2018) ... so a total of 70 months

PPR exemption = £45k * 70 / 118 = £26,695

rest of gain = £18,305

since you have let the flat, as well as using it as a main residence, you can also claim lettings relief. this relief is the lowest of:

* the PPR exemption (i.e. £26,695)
* the non-PPR gain (i.e. £18,305)
* £40k

so lettings relief is £18,305, which reduces the gain to 0.

and you haven't even had to use your annual CGT allowance (£10,900 this year).

jimmo

It was announced today that the final 36 months ownership rule is to be reduced to 18 months wef April 2014.
https://www.gov.uk/government/news/autumn-statement-5-december-2013


If that becomes law the computation is more likely to be
PPR applies from february 2009 - may 2010 (15 months), and then from may 2012 - december 2013 (19 months), and also automatically for the last 18 months of ownership
so a total of 52 months PPR exemption = £45k * 52 / 118 = £19,830
rest of gain = £25,169
since you have let the flat, as well as using it as a main residence, you can also claim lettings relief. this relief is the lowest of:
* the PPR exemption (i.e. £19,830)
* the non-PPR gain (i.e. £19,830)
* £40k so lettings relief is £19,830, which reduces the gain to £5340.
Your annual CGT allowance, currently £10,900 will more than cover that so no tax to pay.
However, I tend to think that it takes a few days from Budget Day, or Autumn Statement Day, for the finer details to come out and there could well be a sting in the tail for you. Give it a week and look again.

grey_gym_sock

well, that'll teach me to answer a tax question before reading the autumn statement documents!

holly_hobby

I did a quick heads up on this about 6ish this eve

holly_hobby wrote: »

Just a quick heads up that PRR in respect of previous occupants of 2nd properties, whereby the last 36 mths of ownership are currently CGT exempt, is scheduled to reduce to the last 18 mths with its implementation scheduled to take place from this coming April (ie APRIL 2014).

Lettings relief currently remains unchanged.

Apologies to those whom are already aware of this impending change.

Hope this helps

Holly x

OP can also offset associated costs in respect of acquisition, disposal, sales marketing, professional costs (not those in relation to CGT filing) and previously reported CGT losses, with any residual gain then further mopped up under his annual unused cgt relief, applicable at the point of disposal.

Hope this helps

Holly x