CGT on sale of a rented property

Ma77hew

Hi, Looking for some guideance on selling a property thats been rented, I can't seem to find online a clear and easy way to calculate what tax I can expect to pay.

I bought a property in 2002, and lived in it for 2 years, in 2004 we moved house and rented the flat out.

We are now looking to sell the flat, we purchased it in 2002 for £109k, and estimated selling price will be around £185k.

I am employed full time and earn £45k, my wife is currently not working as we have a 7 month old, she isnt currently on maternity leave.

The property is jointly owned, I dont expect either of us to use our CGT allowance this year (if we have one).

From reading online my estimate is as follows, does it seem correct or have I misunderstood.

12 years ownership means we pay tax on 8.5/12 of the property increase so £53,833 subject to tax.

Private residence relief, which I assume we would be entitled to though don't really understand what this is, would be £40k

Taxable amount is reduced to £13,833

CGT allowance of £11,000 would reduce this to £2,833

Tax would then be I guess 18% for my wife and 28% for me, so do we split this £2,833 or do we combine the CGT and not pay anything.

I should probably talk to an accountant, but want to try and get a bit of an understanding before hand as the property has only just gone up for sale.

benjus

Don't think you've got that right. Private residence relief is for the time you spent living in the property (approx 3.5 years including final 18 months, so about £22k).

Lettings relief cannot be higher than private residence relief, so that would also be about £22k.

So the taxable amount would be about £32k.

Is it owned 50/50 between you and your wife? AFAIK CGT liability is split according to ownership, so the tax liability would be about £16k each before applying your CGT allowances.

Did you make any improvements on the property that would qualify for CGT relief? Have you deducted allowable expenses such as Estate Agent and solicitor fees?

Ma77hew

Thanks for the response.

I haven't taken into account the estate agent and solicitor fee's assume I can reduce the gain on this for just be for selling and not purchasing?

We made some improvements, fitted a new kitchen though I no longer have the reciepts as we did that when we first moved in. More recently we installed a new boiler and radiators, which cost a £2k I think, I would be able to get the invoice for that.

And yes, its owned 50/50 between the wife and I.

benjus

I'm not a tax expert but AFAIK you can deduct expenses for both the purchase and sale of the property. Do you have any evidence at all of how much you spent on the kitchen? You might find that getting a bit of advice from a tax accountant pays for itself by highlighting what you can deduct...

booksurr

Ma77hew wrote: »

I haven't taken into account the estate agent and solicitor fee's assume I can reduce the gain on this for just be for selling and not purchasing?

you claim both purchase and selling:
- legal fees
- SDLT
- EA fees

Ma77hew wrote: »

We made some improvements, fitted a new kitchen though I no longer have the reciepts as we did that when we first moved in. More recently we installed a new boiler and radiators, which cost a £2k I think, I would be able to get the invoice for that.

no receipt = no claim
boiler - not allowed. That would be a cost you claim against income tax on your rental profit as it counts as a repair not a capital expenditure

as for your liability: the calculation must be in months not years but as an illustration:

owned 2002 - 2014 = 12 years, lived in for 2 so also entitled to the final 18 months ("1.5 years") ownership as exempt under "deemed occupancy" rule

gain 76k: if you own as joint tenants then the gain is split 50/50 so 38k each. If owned as tenant in common it is split according to your respective shares. The following assumes 50/50 split

PRR 76/2 x (2+1.5)/12 = 11,083

letting relief : lowest value = 11,083

personal allowance 11,000

less buying and selling costs £x

net taxable gain: 38 - 11,083 - 11,083 - 11,000 - £x = 4,834

with such a small net taxable gain you are correct that your wife will pay 18% on her 4,834, whereas you will pay 28% on your 4,834 given your income level

Ma77hew

Thanks a lot for the help, I was worried I would end up with a £30k bill when the EA first mentioned CGT.

Sounds like its worthwhile trying to find the invoice for the purchase costs.

I will engage with an accountant to crunch the final numbers, but this gives me a good idea of what I'm looking at.