Capital Gains Tax/Letting Relief on property which we did live in

marbles00

We are currently in the process of selling a property we purchased in 2005. It is in joint names and we are not married.

We lived there for 2 years so have been renting the property out for 6.5 years. We have not made an profit on the rental income as it covers the mortgage.

Price has risen by £130,000. Paid £220k and is now worth £350k.

What capital gains tax do we need to pay and how do we calculate the letting relief.

One of us does not work (does not claim benefits so no taxable income) and the other is a higher tax band payer.

Any advice to help would be massively appreciated.

CLAPTON

your liability for tax on rental income is based on the rent received less allowable expenses:
allowable expenses include the mortgage interest but not the capital payment


cgt is based on the profit so 130,000 less buying /selling costs maybe 15,000 say
so profit is now 150,000

as you have owned it for 8.5 years (you need to do this in months in actuality but for simplicity I'll stick to 8.5 year)


you get PRR for the period you lived there (2 years) and the last 3 year (after april that falls to 18 months)

so that means 115,00 x (5/8.5 ) = 67,647 is exempt
plus you have letting relief ; the lesser of PPR, letting period or 40,000 (each person)
so here your letting relief will be 2.5 years as you can't double count the last 3 years

so gain reduces to 115,000 x 1/8.5 = 13,529
as you each have a cgt allowance of 10,900
NO tax to pay