Question about capital gains on a house

dandy-candy

Can anyway help with this please? We live in a house we bought 19 years ago and it has gone up a lot over the years. This year we are going to move to a different house and rather than sell this one, we want to rent it out.

If at some point in many years time we sell this house, I believe we have to pay capital gains as it won't be our "home" anymore, but how will they calculate it? Surely we won't have to pay gains on it from the price we paid in 1996 - will we?!

Innys1

Look on the HMRC website. While not that user friendly, it contains the answers to your questions. Alternatively, search this forum.

HappyMJ

dandy-candy wrote: »

Can anyway help with this please? We live in a house we bought 19 years ago and it has gone up a lot over the years. This year we are going to move to a different house and rather than sell this one, we want to rent it out.

If at some point in many years time we sell this house, I believe we have to pay capital gains as it won't be our "home" anymore, but how will they calculate it? Surely we won't have to pay gains on it from the price we paid in 1996 - will we?!

Yes you do...but if you were to sell in 19 years time plus a bit of time for a few exemptions then you pay tax on half the gain less some allowances and your annual exemption from the price you paid when you purchased the house plus whatever you've spent on it to improve (not maintain) it such as an extension.

If you sold it now you could realize all the gains free of tax. You could even rent it out for a period of time first before making that choice and still not pay tax.

kinger101

The truth is we don't know how you'll calculate the capital gain because we don't know that the law will be when you sell the house. Check the HMRC website for the current rules.

https://www.gov.uk/tax-sell-home

booksurr

based on the current rules and the current rates here is an example I did only a few hours ago. Use the search button!

https://forums.moneysavingexpert.com/discussion/5315071

dandy-candy

Oh my goodness I find this confusing.
We bought our house for £169k and today they are selling for £700k. If we rent it out for say five years and supposing it was then worth £750k, we pay capital gains on the increase from £169k to £750k? Not the increase from when we moved out, £700k to £750k?

HappyMJ

dandy-candy wrote: »

Oh my goodness I find this confusing.
We bought our house for £169k and today they are selling for £700k. If we rent it out for say five years and supposing it was then worth £750k, we pay capital gains on the increase from £169k to £750k? Not the increase from when we moved out, £700k to £750k?

I would find it very unlikely that a £700k house will only appreciate in value by 1.3% per year over the next 5 years.

dandy-candy

That was just a figure I pulled out of the air! I was just wondering at what point the gov calciulate the gain. I assumed it was when the house stopped being our home/sole residence. Really shocked if it includes all the price increas since we bought it. Although the ticket price was £169k, of course over the years we have paid much more because we had a mortgage!

HappyMJ

dandy-candy wrote: »

That was just a figure I pulled out of the air! I was just wondering at what point the gov calciulate the gain. I assumed it was when the house stopped being our home/sole residence. Really shocked if it includes all the price increas since we bought it. Although the ticket price was £169k, of course over the years we have paid much more because we had a mortgage!

You lived in it for 19 years. The capital gains tax is calculated to take that period into account which you won't pay CGT for.

If you don't want to have any liability to pay CGT then sell it.

booksurr

dandy-candy wrote: »

Oh my goodness I find this confusing.
We bought our house for £169k and today they are selling for £700k. If we rent it out for say five years and supposing it was then worth £750k, we pay capital gains on the increase from £169k to £750k? Not the increase from when we moved out, £700k to £750k?

Yes, your gain will be 581 but you then deduct PRR, LR and PA as I have shown in the calculation. Only then do you possibly face a CGT bill if the net gain is a +ve value

dandy-candy wrote: »

That was just a figure I pulled out of the air! I was just wondering at what point the gov calciulate the gain. I assumed it was when the house stopped being our home/sole residence. Really shocked if it includes all the price increas since we bought it. Although the ticket price was £169k, of course over the years we have paid much more because we had a mortgage!

READ the example of the calculation I have posted. You asked the question and the answer is before you, it is a very simple calculation with only 2 variables, selling price and date of sale
http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6

I am not going to put your numbers into my calculation as you can easily do that yourself

silvercar

dandy-candy wrote: »

That was just a figure I pulled out of the air! I was just wondering at what point the gov calciulate the gain. I assumed it was when the house stopped being our home/sole residence. Really shocked if it includes all the price increas since we bought it. Although the ticket price was £169k, of course over the years we have paid much more because we had a mortgage!

You've got a gain of potentially 600k, but exempt for (19+1.5) divided by 24 of it. So very roughly 120k and from that you can take letting relief and your personal CGT allowance.

So less of a shock than you first imagine.