Capital Gains on Selling Flat - just past 3 years

jamesf1976

Hi


I wonder if anyone can clarify this situation for me. My wife and I own a flat in London that we're now thinking of selling. And I'm trying to understand how much of the profit we'll by paying capital gains on. Here are the facts:


Moved in April 2013
Moved out September 2014 - let the property out
Selling September 2017 (although obviously this could take several months to go through so it could be say December 2017 by the time it's finalised).


I've only just discovered the 3 year rule which I think annoyingly we are going to be just outside (although I'm not clear whether it applies from the date of purchase or the moment you left the property) - do we just pay capital gains on the period after that or is it irrelevant once you are beyond 3 years. And you pay on the whole lot?

I know there is another rule about 18 months but I don't think that applies in this case?



We do not own any other property.


Any help advice on this would much appreciated!


Thanks!

macman

If you sell in December 2017 then you'll pay CGT for the period between September 2014 and December 2014. It will be calculated pro rata as 3/39th's of the total gain. The rate will be at your marginal rate of income tax, be it 18% or 28%, for basic or higher rate taxpayers respectively. If you each own 50%, then that liability is split between you 50/50.
Once you deduct your annual CGT allowance of £11,300 per person, you may have nothing to pay.

00ec25

jamesf1976 wrote: »

Hi

I wonder if anyone can clarify this situation for me. My wife and I own a flat in London that we're now thinking of selling. And I'm trying to understand how much of the profit we'll by paying capital gains on. Here are the facts:

Moved in April 2013
Moved out September 2014 - let the property out
Selling September 2017 (although obviously this could take several months to go through so it could be say December 2017 by the time it's finalised).

I've only just discovered the 3 year rule which I think annoyingly we are going to be just outside (although I'm not clear whether it applies from the date of purchase or the moment you left the property) - do we just pay capital gains on the period after that or is it irrelevant once you are beyond 3 years. And you pay on the whole lot?

I know there is another rule about 18 months but I don't think that applies in this case?

We do not own any other property.

Any help advice on this would much appreciated!

Thanks!

There is no such 3 year rule for CGT (there used to be or you may be confused with SDLT where there is in some cases) and you have not said anything which suggests the 18 month rule does not apply. In respect of the latter: between April 13 - sept 14 did you live there as your only/main home of both of you (assuming you were married at that time)?

if the answer is yes then, even allowing for London property price growth, it is unlikely you will have any CGT to pay, although you are liable for CGT and must do the calculation to show what your final figure is

the mechanics of it, assuming it was your main home, are:

1. Selling price in 2017 (less legal fees and EA costs) minus purchase price in 2013 (less legal fees and SDLT if applic) = Gross Gain

2. the gross gain is split between each owner according to their ownership share. the rest of the calculation is for each owner using only their share of the gross gain

3. The period you lived in it as your main home gives you Private Residence Relief (PRR) calculated as a %. No of months (or days) actually lived in (so Apr13 - Sept 14 in your case) PLUS the final 18 months of ownership = PRR period. The % = PPR period divided by total ownership period (so Apr 13 - date of sale)

4. PRR % x Gross gain = value of PRR

5. Now, because it was once you main home during its ownership, you also can claim Letting Relief (LR). LR is the lowest value of 3 things: a) the PRR value in step 3 or b) the period let (Oct 14 - date tenant moved out and letting ceased) /ownership period x gross gain or c) the max allowed amount £40,000. The lowest figure = value of LR

6. each owner gets a personal allowance of £11,300

7. The net taxable gain upon which you pay tax = Gross Gain - PRR - LR - personal allowance

it is frequently the case with a property that was used as a main home that the net taxable gain is zero (or negative) meaning no CGT has to be paid.

00ec25

macman wrote: »

If you sell in December 2017 then you'll pay CGT for the period between September 2014 and December 2014. It will be calculated pro rata as 3/39th's of the total gain.

your calculation is very wrong

jamesf1976

Thanks for the replies and detail much appreciated!