if i live in a property that was once buy to let, will i pay cgt when i sell?

JennyP

I do believe you!
This is really helpful and makes me realize my plans are unfeasible!

booksurr

JennyP wrote: »

makes me realize my plans are unfeasible!

why? since your plan is to sell anyway as you cannot afford to live in the large property long term you are going to have to pay a CGT bill sooner rather than later

as it stands, apart from the 11,000 personal allowance, you have no other relief available against which to offset the gain

if you move in and live there as your main home (*) you will automatically get 18 months worth of relief.

if you live there less than 18 months you will be better off than if you had not lived there at all since you will still get 18 months relief even if you only live there for say 6 months



* assuming you own more than 1 property simultaneously the test of main residence is a long combination of facts of how you use it, eg: where do you commute from, where do the kids live, if still married where does the spouse live, where do your friends know to find you, and, in part, how long have you lived there

purdyoaten

booksurr wrote: »

why? since your plan is to sell anyway as you cannot afford to live in the large property long term you are going to have to pay a CGT bill sooner rather than later

as it stands, apart from the 11,000 personal allowance, you have no other relief available against which to offset the gain

if you move in and live there as your main home (*) you will automatically get 18 months worth of relief.

if you live there less than 18 months you will be better off than if you had not lived there at all since you will still get 18 months relief even if you only live there for say 6 months



* assuming you own more than 1 property simultaneously the test of main residence is a long combination of facts of how you use it, eg: where do you commute from, where do the kids live, if still married where does the spouse live, where do your friends know to find you, and, in part, how long have you lived there

Agreed - hopefully the op has realised that the tax bill is £37600 odd maximum and not the £134k taxable.

The other aspect is timing - if the op were to sell the property, say, end of April 2016, the tax would not be payable until January 2018.

All told, sounds like a way out to me!

JennyP

purdyoaten wrote: »

Agreed - hopefully the op has realised that the tax bill is £37600 odd maximum and not the £134k taxable.

The other aspect is timing - if the op were to sell the property, say, end of April 2016, the tax would not be payable until January 2018.

All told, sounds like a way out to me!

I don't understand that! Brain is addled at the moment!
The tax bill is 37600 pounds maximum?

I calculated my bill at about 70000 last night based on the information here.

Exploring other options - life is just weird right now as I am unemployed too ! It never rains.....

My best friend just said forget about the tax. Sell up, pay it and be grateful for the gain it made!

patanne

Total novice here so all feel free to ignore. The OP says she is unemployed at the moment so aren't we talking only 18% tax? So the sooner it is sold the better. Or a lodger which only needs to be declared if over approx £4k per annum.

booksurr

JennyP wrote: »

I don't understand that! Brain is addled at the moment!
The tax bill is 37600 pounds maximum?

I calculated my bill at about 70000 last night based on the information here.

Exploring other options - life is just weird right now as I am unemployed too ! It never rains.....

net taxable gain 134k, but you pay tax at 18% and/or 28% on that gain, hence its called the net taxable gain not the tax payable!!!

if all of the gain is payable at 28%, the worst possible outcome would be 37,600 maximum payable
do not lose sight of the fact you just sold a property for 400k so you have 362k of cash to spend

since we don't know your actual figures we can't comment on whether your 70k is correct, as you are unemployed you will pay a 20 - 35k of that gain at 18% (depends on your JSA and other income levels) and only pay 28% on the amount in excess of 41,865

JennyP wrote: »

My best friend just said forget about the tax. Sell up, pay it and be grateful for the gain it made!

a very sensible friend!
- you have to sell,
- you are going to have to pay tax
- will get to keep at least 72% of the sales proceeds after worst possible tax outcome.
- 72% of the sales value is a lot of money (although of course you will have to pay off any outstanding BTL mortgage)

purdyoaten

booksurr wrote: »

net taxable gain 134k, but you pay tax at 18% and/or 28% on that gain, hence its called the net taxable gain not the tax payable!!!

if all of the gain is payable at 28%, the worst possible outcome would be 37,600 maximum payable
do not lose sight of the fact you just sold a property for 400k so you have 362k of cash to spend

since we don't know your actual figures we can't comment on whether your 70k is correct, as you are unemployed you will pay a 20 - 35k of that gain at 18% (depends on your JSA and other income levels) and only pay 28% on the amount in excess of 41,865

a very sensible friend!
- you have to sell,
- you are going to have to pay tax
- will get to keep at least 72% of the sales proceeds after worst possible tax outcome.
- 72% of the sales value is a lot of money (although of course you will have to pay off any outstanding BTL mortgage)

I hesitate to be pedantic, given your excellent posts, but the op will keep 90.5% of the proceeds of £400000.

JennyP - remember that the costs of purchase (legal etc) have to be added to the purchase price and costs of sale deducted from the sale price. Remember that the costs of any improvements also have to be deducted when computing your gain.

purdyoaten

patanne wrote: »

Total novice here so all feel free to ignore. The OP says she is unemployed at the moment so aren't we talking only 18% tax? So the sooner it is sold the better. .

The gain after annual exemption is £134454!

There are no personal allowances available against this. Even assuming no other income, the tax will be £31865 at 18%, £102589 at 28%.

booksurr

purdyoaten wrote: »

I hesitate to be pedantic, given your excellent posts, but the op will keep 90.5% of the proceeds of £400000.

please do correct away!!!

as we are not being paid for the advice we give, my quality control over what I write is not the same as on a professional engagement , therefore some reliance is placed on others to "contribute"

booksurr

patanne wrote: »

The OP says she is unemployed at the moment so aren't we talking only 18% tax? .

CGT is payable at two rates: 18% and 28%. The 28% rate kicks in when the "total income" in that tax year goes above 41,865. It is perfectly possible to pay zero income tax and still pay some CGT at the "higher" rate if the gain is big enough. the 18/28 cutoff is not based on whether you are simply a basic or higher rate (income) tax payer

41,865 being the threshold for the 40% income tax band, ie 10,000 personal income tax allowance + 31,865 20% income tax band = 41,865 above which "higher rate" tax is payable

"total income" comprises all sources of (taxable) income (salary, taxable savings interest, taxable benefits, dividends etc etc) plus the net taxable capital gain

JSA is taxable but is certainly less than the 10,000 income tax personal allowance, therefore as purdyoaten shows, all of the 31,865 lower rate bracket should still be available, but the net capital gain (£134k) is well above that figure so the majority of it will be charged to CGT at 28%