Capital gain tax because of lodgers?

Nicola_Ed

I think this will apply in addition to the other reliefs


http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#4


Letting all or part of your home
If you've let out all or part of your home you may not get full Private Residence Relief when you sell or dispose of it. But you may get another relief known as 'Letting Relief'.
The maximum amount of Letting Relief due is the lower of:

• £40,000
• the amount of Private Residence Relief due
• the amount of gain you've made on the let part of the property

Example

You used 60% of your house as your home and let out the other 40%.
You sell the property, making a gain of £60,000.
You're entitled to Private Residence Relief of £36,000 on the part used as your home (60% of the £60,000 gain).
The remaining gain on the part of your home that's been let is £24,000.
The maximum Letting Relief due is £24,000 as this is the lower of:

• £40,000
• £36,000 (the Private Residence Relief due)
• £24,000 (the gain on the part of the property that's been let)

There's no Capital Gains Tax to pay - the gain of £60,000 is covered by the £36,000 Private Residence Relief and the £24,000 Letting Relief.

booksurr

Cat2011 wrote: »

I found a help sheet that says

"The final 36 months of your period of ownership always qualify for relief,regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point. "The 36mths is now 18, but looks like the fact that I've let out to 3 lodgers doesn't count for the last 18mths?

in summary

1. the property was (for a time) your main home therefore you are entitled to Private Residence Relief for your whole period of actual occupation
2. built into PRR is the absolute right to always have the final 18 months (the reduction from 36 is for sales made wef April 2014) as part of the PRR period as deemed occupation irrespective of whether you let it out or leave it empty in that period but you cannot double count this - see below
3. as you have more than 1 lodger your claim to PRR is restricted as advised above based on your choice of room number.
4. as you have a CGT liability arising in the 48 months during which you had >1 lodger you can claim letting relief for that period

using your numbers from #1 if you owned it for only 5 years in total and lived in it with >1 lodger for the first 4 years then moved out yourself and let it for the final 12 months before selling, your liability is:

total ownership : 60 months
PRR: 60 months (ie 4 years lived in = 48 + final 18 months = 66. So there is a 6 months overlap of actual occupation coinciding with deemed occupation meaning your PRR is "reduced" to 60 months. NOTE actual occupation always takes precedence over deemed occupation so in your case as actual occupation includes having >1 lodger your 6 months of actual occupation do in fact cause you to have a CGT liability because your claim to PRR in those 6 months is restricted

your CGT is therefore:
a) 48 months of PRR restricted by the room number apportionment

b) 48 months where Letting Relief applies to that portion not covered by a)

c) final 12 months where you can claim deemed occupation since these 12 months arise during the final 18 months of ownership and you were not living there so there is no need to restrict the claim since they were tenants not lodgers at that stage therefore this applies to that portion not covered by a)+b)

gain 70,000
PRR : 70,000 x (48/60) x room restriction: bedroom, spare, living rm, kitchen, bathroom (5/8) = 35,000
PRR final 12 months = 70 x 12/60 =14,000
total PRR = 49,000

letting relief lower of :
PRR: 49,000
gain in let period: 70,000 x (48/60) x (3/8) = 21,000
max allowed: 40,000

net taxable gain
70,000 - 49,000 - 21,000 = zero