Capital Gains Tax - selling our only property

GP333

Hi all,

My spouse and I have owned a flat for aprox. 7 years. Apart from the first few months (when it was empty) it has been rented to several tenants, with pretty much no gaps between them.

We live in a rented house ourselves (spouse in armed forces) so the flat is the only property we own, shared 50/50 (mortgaged).

With the changes to landlord tax and the fact that we may want to buy a home for ourselves to live in within the next year or so, we're wondering if it's worth keeping the flat or selling.

Aware that if we did scrape together enough money for a deposit on a second property (for us to live in) we'd have to pay extra high stamp duty and still pay capital gains on the flat if we sold it later - so wondering if it's best to sell it now, and as/when we are ready to have a fixed home of our own we can re-invest. We don't make any money on the place month-to-month, rent just covers mortgage (albeit a repayment mortgage).

I'm not sure if there are any allowances/if capital gains is less since we cannot live in the flat even if we wanted to due our situation, and it is the only place we own (since we rent ourselves). If we were to take the property as our main residence and actually move in, how long would we have to live there for to minimise/avoid capital gains?

If anyone can shed any light on what things we should be considering, where to look for info or even who to ask (financial advisor? Solicitor?! No idea!) I'd be grateful.

Many thanks!

Gill

G_M

Normally as it's not your main residence you'd have to pay capital gains tax on selling your current property.

However I seem to recall there's an exemption for armed forces personell - check the armed forces forum here, or through your own forces info channels..

Bluebirdman_of_Alcathays

Is your spouses employer actually providing the accommodation? Or are you privately renting somewhere nearby?

GP333

Hi G_M - thanks for the tip, I've had a look over there and cannot find a recent answer when searching for 'capital gains' - I think I'll have to search elsewhere for up to date info.

Bluebird - we are in military quarters, so we pay rent but we cannot chose the house/location, it comes with his job, rent money is deducted from his salary.

Many thanks

Bluebirdman_of_Alcathays

GP333 wrote: »

Hi G_M - thanks for the tip, I've had a look over there and cannot find a recent answer when searching for 'capital gains' - I think I'll have to search elsewhere for up to date info.

Bluebird - we are in military quarters, so we pay rent but we cannot chose the house/location, it comes with his job, rent money is deducted from his salary.

Many thanks

Thank you for clarifying. In that case, you are deemed occupied in the house you own for CGT purposes, so no CGT will be due. (example 7 in the HMRC helpsheet)


https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief


If you buy a second property before disposing of your first, the higher SDLT will apply.


If you then dispose of your original house within 3 years of buying your second, you can claim back the additional SDLT you paid from HMRC.


HOWEVER that is only if the house you are selling is your main residence. I have no idea if the occupation test used for Income Tax and CGT also applies for SDLT. My guess is that it would, but the legislation is silent and there has been no case law.

GP333

Bluebird - Thanks you so much, really kind if you to share your knowledge and point me in the direction of a good source of info! Much appreciated.

The 'intent to occupy' part is a bit concerning though. Does the 'intent' need to be enduring, all the while you're away from the dwelling? To give context: it was our intention for all of two months or so after we bought it (never actually moved in, since we were decorating etc - it was a mess) but when we bought it we were already living in the rented (job related) accommodation. It was a further change of location to husband's work that made us think again, and we decided against living in the place ourselves. Since then we have moved/lived in different places (all for the job) but our 'intention' has gone away now, since the opportunity to return to the original place of work has not been an option (the workplace in question no longer exists). Yet we still kept the property, with changed intentions, albeit out of our control. Does this complicate things or mean we may actually be liable for CGT?

The purchase of a second home is a bit of a pie-in-sky dream and unlikely scenario, but one I was curious about. Most likely is that we'd have to ell the flat to fund our next property.

Many thanks!

Bluebirdman_of_Alcathays

Don't get too focused on the word "intend". HMRC cannot prove your inner thoughts (yet). As long as HM Forces provide accommodation, you have CGT relief.


Are you declaring your rental income to HMRC? You say the property you let doesn't make money, but you can't use all of the mortgage payments as an allowable cost (you have a repayment mortgage - only interest is allowable), so your profit, and hence income tax bill, could well be higher than you think.

GP333

Phew - perhaps I was over thinking that! Thank you.
Yes - we both submit tax returns each year solely for the purpose of the flat. It's the change to how tax would be calculated for landlords that is a motivator to sell the place, since mortgage and rent are about equal. But if we don't have to worry about CGT, then maybe that changes things for us.

Thank you - you have been so generous with your time and very helpful.

GP333

Sorry - to clarify - when I say it doesn't make money I mean month-to-month. I appreciate the mortgage is being paid off and the property is gaining value (and this is profit in itself), I just meant in everyday terms, as far as our income is concerned, we are no better off.

Bluebirdman_of_Alcathays

GP333 wrote: »

Sorry - to clarify - when I say it doesn't make money I mean month-to-month. I appreciate the mortgage is being paid off and the property is gaining value (and this is profit in itself), I just meant in everyday terms, as far as our income is concerned, we are no better off.

No problem - there are an alarming amount of LLs out there that think that as RentIncome=MortgagePayment that they are free of IT - many of them aren't. But it sounds like all that is being taken care of in your case.


The only thing it sounds like you need to be wary of is the additional Stamp Duty - it would (for instance) be £7.5k on a £200k house, so it's quite big potatoes. Good luck!

GP333

See what you mean, a tempting assumption to make re IT but no, all declared (and taken!) here ;-)

Yes, big potatoes indeed! Something to avoid. You've been so kind. Thank you so much.