how do i avoid capital gains tax

tommytwosheds

Hi everyone new here I was wondering if anyone can help me?
My in-laws own a house that they inherited years ago and rent out.
They are advancing in age and are thinking of retiring and would like to sell the house to fund there retirement. But as you know they would have to pay a lot of tax if they do what are there options to reduce there burden thanks in advance.

chucknorris

tommytwosheds wrote: »

Hi everyone new here I was wondering if anyone can help me?
My in-laws own a house that they inherited years ago and rent out.
They are advancing in age and are thinking of retiring and would like to sell the house to fund there retirement. But as you know they would have to pay a lot of tax if they do what are there options to reduce there burden thanks in advance.

They could sell the house that they live in instead (assuming that it has always been their main residence) and move into the investment property.

Cook_County

They could leave the UK for more than 5 tax years.


They could borrow against the property but keep the property until the second death so there is only one level of tax, ie IHT, rather than CGT plus IHT on the cash left after the CGT.

Spidernick

Cook_County wrote: »

They could leave the UK for more than 5 tax years.

That won't work from 6 April, as CGT will then be payable on residential property for non-UK tax residents:

http://www.ft.com/cms/s/0/aadb2d8e-76f2-11e4-8273-00144feabdc0.html

Mojisola

tommytwosheds wrote: »

My in-laws own a house that they inherited years ago and rent out.

They are advancing in age and are thinking of retiring and would like to sell the house to fund there retirement.

But as you know they would have to pay a lot of tax if they do what are there options to reduce there burden thanks in advance.

They will only have to pay tax on the increase in value minus their allowances. Have you done a rough calculation to see what the bill would be?

xylophone

http://www.uktaxcalculators.co.uk/capital-gains-tax-calculator.php
might help.

chucknorris

Cook_County wrote: »

They could leave the UK for more than 5 tax years.

The loophole of leaving the country for 5 years is being/has now been closed.

chucknorris

Spidernick wrote: »

That won't work from 6 April, as CGT will then be payable on residential property for non-UK tax residents:

http://www.ft.com/cms/s/0/aadb2d8e-76f2-11e4-8273-00144feabdc0.html

We were looking into moving to the Isle of Man, but then realised that we were too late, just as well we hadn't moved 3 years ago, we would have been gutted.

tommytwosheds

Mojisola wrote: »

They will only have to pay tax on the increase in value minus their allowances. Have you done a rough calculation to see what the bill would be?

Unfortunately they inherited the house a fair few years ago so the value has gone up considerably dunno how it works exactly so any help is greatly appreciated

Savvy_Sue

tommytwosheds wrote: »

Unfortunately they inherited the house a fair few years ago so the value has gone up considerably dunno how it works exactly so any help is greatly appreciated

Your starting point is its value when they inherited (and did they inherit it jointly, and if not when did they transfer it into joint names?), and its value today.

Then you need month and year they inherited, and projected month and year of sale, although in this case the dates will be less critical [STRIKE]if it has always been rented out because you can only claim lettings relief for a certain number of months.[/STRIKE]because there won't be any relief for it having been PPR and subsequently let out (see spidernick's post below).

Spidernick

Letting relief can only be claimed if the property was the Principle Private Residence at some point, which would not seem to be the case here. I think Savvy Sue meant this, but was a little unclear.

To the OP I would say that there isn't really any way to mitigate the CGT if the property has never been their main residence, other than going down the route suggested in #2 above, if that was a possibility. Saying that the let property may be nowhere near where your in-laws currently live and may not be somewhere they would like to live or the right type of property for them.

Can the current letting income not help fund their retirement? If they do want to sell the let property then it will be a case of working out the CGT due as at #6 above. At the end of the day, with a second property at their disposal they are most likely in a better position than most people of their age.