Capital gains on selling private property

Kashstrap

Hi there
We rented out our house two years ago and we are currently living in my parents' annexe but paying them a small rent. We have unsecured debts of £60000 and our business is struggling. We are thinking of selling our house to pay off debts but continue to live with my parents until we are financially secured so we can buy our own place again. My questions are: Is selling the house a good move, will we be liable for capital gains tax, if so how much? Is it worth selling up if we do have to pay CGT. The house has a market value £750000 and we have a mortgage of £460000. Thank you.

Mattygroves2

When did you buy (month and year) ?

How much did you pay ?

If you bought before 31 March 1982 what was it's value then ?

Did you live in it from purchase to it being rented out ?

Any improvements that are provable (with receipts) over the time you've owned it?

When did you move out ?

Given that you only moved out 2 years ago it's likely that there won't be any CGT but the answers to the above will allow the exact answer to be worked out.

Kashstrap

Thanks for your response. We bought the house from my father in July 2005 for £180000 and lived in it until March 2012. We started renting it out in April 2012. Hope that helps.

Mallotum_X

If you sell fast - before April 6, then it would be regarded as your principle private residence and no tax would be due. The rules are changing so from 6 April the qualifying period changes from 3 years to 18 months. You have probably missed that boat as selling in just 2 weeks is probably not realistic.

You will need to establish the value of the property when you moved out for calculating the profit. If you use an accountant for your company affairs then your best bet is to talk to them.

Mallotum_X

Kashstrap wrote: »

Thanks for your response. We bought the house from my father in July 2005 for £180000 and lived in it until March 2012. We started renting it out in April 2012. Hope that helps.

180k to 750k during the recession, are you really sure about that? Did you undertake a refurb/building works etc whilst you were living there? If it was 180k how did the mortgage get to 460k?

pjcox2005

By no means categoric advice but I'd be surprised if you have any liability:

July 05 to Apr 12 will be covered by PPR as it was your main residence.

If sold after April, say June 14, then your last 18 months will be covered as you are allowed that for any reason.

So the only outstanding period would be Apr 12 to Jan 13 (i.e. start of 18 month period above) which you would expect to be covered by letting relief under the PPR rules.

After that, any gain could also be offset by your capital gains personal allowance of c.£10.9k (if i recall) and potentially you could also use your wife's allowance as well.

So, just sale costs to think about.

Mallotum_X

pjcox2005 wrote: »

If sold after April, say June 14, then your last 18 months will be covered as you are allowed that for any reason.
.

I don't think this is correct, my understanding is that if you lived in the property within the last 18 months then PPR applies. You don't get an 18 month allowance to use later. So the whole period from 2012 is taxable if a gain has arisen in that period (subject to other relief's etc)

Mattygroves2

Then the gain is £750,000 - 180,000 = 570,000

Exemption for private residence is period you lived there plus 18 month so 99 months.

Private residence relief (assuming you sell in May 14) is 99/107 x 570 = 527,000

Letting relief = 8/107 x 570,000 = 42,617 but capped at £40,000

So gain liable to CGT if sold in May 14 = 570-527-40 = £3,000 which will be more than covered by your two (assuming jointly owned) CGT annual allowances of £11,000 each.

So no tax to pay if you sell soon. However, the longer you leave it the greater the possibility for tax to become a consideration as the proportion relating to your occupation will get smaller and because the gain is so big the lettings relief won't increase above £40k.

If you sold it for the same price in December 2014 then the taxable gain would be £35,000 and getting towards taxable after allowing for selling and acquisition costs.

Mattygroves2

Mallotum_X wrote: »

You will need to establish the value of the property when you moved out for calculating the profit. If you use an accountant for your company affairs then your best bet is to talk to them.

The value on moving out is irrelevant. CGT is worked out on the percentage of time the property has been lived in plus 18 months.

Kashstrap

Mallotum_X wrote: »

180k to 750k during the recession, are you really sure about that? Did you undertake a refurb/building works etc whilst you were living there? If it was 180k how did the mortgage get to 460k?

No refurb. House was built for us by my father hence the price however its market value was £450000. Very sad to sell. Unfortunately we borrowed more over the years to run the business.

Mattygroves2

One final thought - was the purchase from your father at below market value ? Did he pay CGT based on the market value when he sold it to you or did he live there as his main residence ?

Edit - crossed with your post. Is your father a builder and presumably paid income tax on the sale to you at £180k ?