Capital Gains Tax in negative equity?

mrssaver_2

I so hope someone can help me out and stop me running around in circles!

Hubby and I bought our home in 2001 for £80k. We lived in this house while building our new bungalow and currently have a mortgage on that first home of £154,000. We are hoping to sell this first house in the summer and have been told to expect no more than £130k leaving us with a substantial shortfall to make up to the bank. We have had lodgers in the house since Christmas.

Will there be any CGT payable on any proposed future sale?

On_My_Lonesome

What dates did you actually live in the house?

mrssaver_2

Sorry, we lived there from March 2001 until December 2013.

da_rule

There shouldn't be any CGT to pay as the property was your principle private residence. If you have lived in a property then the last 18 months of ownership as well as any periods you were in occupation are disregarded for CGT. Therefore as long as you sell the property within 18 months of December 2013 there will be no CGT to pay.

00ec25

mrssaver wrote: »

We have had [STRIKE]lodgers[/STRIKE] tenants in the house since Christmas.

Will there be any CGT payable on any proposed future sale?

as you state you moved out in Dec 13 then they cannot be lodgers as you are no longer resident, legally they are tenants - I hope you are clear that you cannot claim the rent a room allowance against them

also if there is more than one lodger then the property is liable to CGT as it loses part of its main residence exemption but you can cl;aim letting relief instead

however, luckily in your case, that is all irrelevant as the 18 month rule applies so as da rule states, provided you exchange contracts for its sale by June 2015 (ie 31/12/13 + 18 months), then it will remain wholly exempt for CGT leaving you only the income tax on the rent to settle up

da_rule

00ec25, is it the date of exchange rather than completion which is used for calculating the time the gain was made? Just curious because obviously the 'gain' isn't in the possession of the seller until exchange, and if you have a long period between and exchange and completion they may struggle with the tax bill.

00ec25

da_rule wrote: »

00ec25, is it the date of exchange rather than completion which is used for calculating the time the gain was made? Just curious because obviously the 'gain' isn't in the possession of the seller until exchange, and if you have a long period between and exchange and completion they may struggle with the tax bill.

a property purchase is a "conditional contract" which becomes legally binding upon being exchanged at which point the CGT disposal date is established because the parties are committed to the purchase/sale.

If either party then fails to complete this is a breach of contract - technically known as a "condition subsequent" contract - and they can sue each other for the breach but this does not alter that fact the contract was legally binding at the date of exchange and so the disposal date is then, not when completion takes place
http://www.hmrc.gov.uk/manuals/cgmanual/cg14270.htm

so as you have spotted this could cause cashflow problems if there is a long delay before completion

mrssaver_2

That's fantastic, I thought as much but just needed it confirmed in black and white as it were.

(Sorry, yes I should have said "tenants" rather than "lodgers"...

Many thanks to you both for taking the time to help explain it, I really appreciate it! :beer: