Capital Gains Tax - Rented property

RedTiger123

Hello everyone. I understand there are hundreds of CGT questions being asked, and I have looked through many but was hoping someone could give me an answer completely relevant to my situation.

Basically I currently live in a house (House A), and own the one next door which I rent out (House .

Now I'm wanting to sell House B, but I do understand that I will pay capital gains tax on it. I paid around 60,000 for the house, and it is currently valued at 160,000. I understand I have CGT relief of around 10,900 and so does my wife.

So 160,0000 - 60,000 - 21,800 = 78,200. We actually lived in this house as a family, from around 2001-2005, then I lived alone in it until 2009. We have since rented it.

Our combined income is around 22,000 per year.

A) How much capital gains tax will I pay on this?

How can I reduce this amount e.g. If the tenant leaves, and I live in the house for 1 year whilst paying bills and having all mail and everything in my name directed to this house - would this allow me to claim the house as my main property and sell without CGT?

All help is appreciated. I've paid tax all my life and having to pay 15,000+ tax on a house I own is ridiculous.

Thank you all in advance.

00ec25

you can never escape CGT by moving back to a house

you lived in it as your main home so can claim private residence relief, on that basis you can also claim letting relief

strangely you say "I" own yet then refer to your wife. If in fact you both own it then is that 50/50 or do you have unequal shares

to give your accurate calculation we need to know the month and year of purchase and the month you occupied it in 2002 and the month you left it in 2007. Your idea that your tax liability is 78,200 is hopelessly incorrect, it is almost certainly significantly lower and possibly is zero but without dates we cannot tell you

RedTiger123

Thanks for the quick response 00ec25. I rushed the post without giving it a read over.

Just spoke with the wife who is better with dates and timescales than me. Here's everything broke down:

JULY 2001 - House bought for 57,000 - moved in as family of 4

August 2005 - Wife and kids left and moved in to new house - I stayed until Feb 2009 (for marriage related reasons)

Feb 2009 - Moved back in with family, rented house out.

House is jointly owned - we are both on the deeds.

Thanks again and apologies for my original mis-match of dates.

00ec25

although you appear to have (briefly but not permanently) separated you did not divorce nor did the ownership alter, therefore tax law says you can only have one main residence between you and it is normally taken to be the one where "the family" is based , so unless you wish to dispute your particular circumstances, your main home changed wef Aug 05 and assuming you exchange contracts on the sale in July 2014, your calculation is:

ownership period: 169 months
gross gain 160,000 - 60,000 = 100,000 but joint ownership so YOUR SHARE of gain is 50,000, your wife similarly has a gain of 50,000 and her calculation will be identical

private residence relief:
family home period = 50 months (to Aug 05) plus the final 18 months (the deemed occupation rule) = 68 months total
50,000 x 68/169 = 20,118

letting relief:
let period commencing Feb 09 = 77 months but excluding the final 18 months as you cannot double count them = 59 months let
LR is the lower of:
a) PRR
b) gain in let period: 50,000 x 59/169 = 17,456
c) max allowed 40,000

net taxable gain:
50,000 - 20,118 -17,456 - 11,000 (personal allowance @ 14/15 rate) = 1,426

tax payable
tax is payable by individuals not by couples so your combined income is irrelevant, however, it is also obvious that each of you must be a long way short of the higher rate tax threshold (41,865) and therefore all your gain will be taxed at the 18% rate so 1,426 x 18% = £257 tax to pay

NOTE
in reality you will have even less tax to pay because I have NOT deducted any legal fees or EA fees associated with either your original purchase or its final sale. Those costs would be deducted in the gross gain calculation and will therefore feed through to everything else. Mathematically for every £500 of costs (ie £1,000 in total between the two of you) your net taxable gain will reduce by £124 so to get down to zero net taxable gain you would need 12,000 in total (6,000 each) which may be a tall order.
However, without doubt, your net taxable gain is trivial and your tax payable infinitesimal given you will have sales proceeds of >£70,000 each from which to pay your individual tax bill!

RedTiger123

I honestly can't thank you enough for your help - thats absolutely fantastic!

Now I'm just wondering - if I was to continue to rent this for, say, 2 years, will all of this still stand? Or will the ratio of living in it to renting it out bring down the figures at all?

Also, I spent around 10,000 when we first moved in to it, but have no receipts as proof. Can anything be done here?

Thanks again!

00ec25

RedTiger123 wrote: »

Now I'm just wondering - if I was to continue to rent this for, say, 2 years, will all of this still stand? Or will the ratio of living in it to renting it out bring down the figures at all?

just play around with the fractions...but frankly it won't make any difference whether you live in it or continue to let it because what is leaving you with a small bill to pay is the fact that between Aug 05 and Feb 09 it was not your main home, nor was it eligible for letting relief

adding extra to the PPR period (bearing in mind you would have to live there for >18 months before it starts to count as the last 18 months are always exempt) or adding extra to the let period will not affect the calculation until you hit the £40,000 limit on letting relief - and that is a long way off

Surely it would be better to continue letting it and take the income rather than move back for at least 18 months - unless you sell the other property and economise that way?

RedTiger123 wrote: »

Also, I spent around 10,000 when we first moved in to it, but have no receipts as proof. Can anything be done here?

:rotfl:

Dear HMRC
I have this cash in hand business doing odd jobs for people. I only earn £10,000 doing it but I have no receipts to prove that so please subject me to income tax on £10k only because there is no paperwork to say otherwise and i am a :A Yours lovingly RedTiger123

Dear RedTiger123 :think:, Yours HMRC

RedTiger123

I weren't sure which would have been the best option, but following your explanation I think the best thing to do is to continue to rent for a year or two and then sell.

Haha, yes thats very understandable. When we moved in we replaced all windows with double glazing and put in a brand new kitchen and bathroom. Obviously don't have the receipts 12/13 years on. My accountant says he can 'vouch for me', not sure what he means by that.

Thanks again for your advice!