CGT for sale of rental property?

Brighty

Hi guys

Have a question regarding how much capital gains tax exposure we would have if we sold a property we are currently renting.

2002 - Bought property with my brother for £100k, though it was valued at £160K (under value purchase from our parents). We lived there asour primary residence, owning no other property

2008 - I relocate, brother has already moved abroad, we rent the property out. Value at this point approx £220-230k, still our only property as we rent in our new locations.

2010 – Buy a new residence in my new location, keep the old one rented out. Value at this point £230-240k

If we were to sell now for an estimated £280-£290k, how much capital gains tax would we be liable for? Is it calculated on the difference between sale price and what we paid? What it was worth when we got it? What it was worth when we moved out as it was no longer our home? What it was worth when we bought the 2nd place?

Cheers

Brighty

CLAPTON

the cgt is based on the gain
i.e. the difference between buying ans selling price less certain cost and allowances

so gain will be 290,000 - 100,000 = 190,000
less say 2000 selling costs so gain 188,000

your share = half so 94,000

less allowances

period of ownership = 12 years

period of residence = 6 years plus last 18 months so PRR = 7.5 years

so PPR allowance = 94,000 x 7.5/12 = 58,750
so gain now 35,250

less letting relief 4.5/12 * 94000 = 35,250


so no tax to pay.

Brighty

Brilliant, thanks Clapton. Was V confused by your reply, but have just read up on letting relief and understand that now, it's capped at the lesser of 40k or the PRR?
Also the example on the hmrc site assumes you are letting a percentage of the house 100% of the time, whereas for me i'm letting 100% of the house for a percentage of the time, so it still applies?
Cool, so no tax bill if we went ahead.
Even if we left it for now and the ratio of PRR to LR time changed and/or our gain increased, it would be Gain-PRR-LR-£11k allowance?

Brighty

booksurr

CLAPTON wrote: »

so gain will be 290,000 - 100,000 = 190,000

but it was purchase at a discount from parents so the connected person rule applies, their acquisition cost was the market value not what they paid with the undervalue/ discount being a PET for the purposes of IHT and this now irrelevant given 7 years have obviously elapsed since the date of the gift

if it was not the parents main home at the point they sold it to the OP then the parents would have been liable to CGT at that point based on its market value. If it was their main home then of course they will get full exemption under the PRR rule so would not have had any CGT to pay themselves.
Either way the gain for the brothers is 290 - 160 = 130k

the rest of Clapton's workings are of course correct so bottom line remains no CGT to pay, but with the smaller gain there is more time available should OP not want to sell right now

purdyoaten

CLAPTON wrote: »

the cgt is based on the gain
i.e. the difference between buying ans selling price less certain cost and allowances

so gain will be 290,000 - 100,000 = 190,000
less say 2000 selling costs so gain 188,000

your share = half so 94,000

less allowances

period of ownership = 12 years

period of residence = 6 years plus last 18 months so PRR = 7.5 years

so PPR allowance = 94,000 x 7.5/12 = 58,750
so gain now 35,250

less letting relief 4.5/12 * 94000 = 35,250


so no tax to pay.

Surely the base cost is the market value at the time of the gift?

Sorry booksurr - you are quicker than I !!

Brighty

booksurr wrote: »

but it was purchase at a discount from parents so the connected person rule applies, their acquisition cost was the market value not what they paid with the undervalue/ discount being a PET for the purposes of IHT and this now irrelevant given 7 years have obviously elapsed since the date of the gift

if it was not the parents main home at the point they sold it to the OP then the parents would have been liable to CGT at that point based on its market value. If it was their main home then of course they will get full exemption under the PRR rule so would not have had any CGT to pay themselves.
Either way the gain for the brothers is 290 - 160 = 130k

the rest of Clapton's workings are of course correct so bottom line remains no CGT to pay, but with the smaller gain there is more time available should OP not want to sell right now

Even better, thankyou.
It was our parents (and our at the time) main home, they retired and moved away, we stayed put. Both passed away in 2012, so more than 7 years after gift.

Brighty

CLAPTON

1. do bear in mind your brother needs to do the calculation for 'his half' but it's likely to be zero tax too.

2. in actual fact the calculation need to be done in months and not years but in this case it would make no difference

Brighty

OK, thanks. His numbers would be a bit different, as he moved out in 2005 or 6 ish i think, but i have a handle on how it's done now, thanks.
Looks like our liability would only ever be small if anything, which is good, i thought we'd be looking at a big bill which would make the idea of selling not worthwhile. If we sold now and paid off the mortgage on it, we would have enough left over to also clear our residential mortgages and be mortgage free. Nice to know we have that option if required.

Brighty