Do I have to pay CGT?

Kamala

I have a tax/financial question regarding selling my flat. I've done a lot of research and I can't find one clear answer.

I'm trying to figure out if I have to pay Capital Gains Tax when I sell my flat. The situation is quite complicated though. I bought it with my ex 3 years ago and when we split up a year after he stayed in the flat. During last 2 years, I was contributing to the mortgage and we weren't renting it (as he lived there). But of course I wasn't living there, I was renting a flat myself.

The law states:

You don't pay Capital Gains Tax when you sell your home if all of the following apply:
* you have one home and you've lived in it as your main home for all the time you've owned it;
* you haven't let part of it out - this doesn't include having a single lodger
* you haven't used part of it for business only;
* the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total;
* you didn't buy it just to make a gain;

The trick is that I wasn't living there, but I wasn't renting it either and I still was paying for it. Of course, I haven't done it to make!a gain, it was just unlucky circumstances.

The other thing is that we are not selling the flat, he is just buying me out.

I would really appreciate!your advice.

Thanks,
Kamala

gingercordial

Kamala wrote: »

I have a tax/financial question regarding selling my flat. I've done a lot of research and I can't find one clear answer.

I'm trying to figure out if I have to pay Capital Gains Tax when I sell my flat. The situation is quite complicated though. I bought it with my ex 3 years ago and when we split up a year after he stayed in the flat. During last 2 years, I was contributing to the mortgage and we weren't renting it (as he lived there). But of course I wasn't living there, I was renting a flat myself.

The law states:

You don't pay Capital Gains Tax when you sell your home if all of the following apply:
* you have one home and you've lived in it as your main home for all the time you've owned it;
* you haven't let part of it out - this doesn't include having a single lodger
* you haven't used part of it for business only;
* the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total;
* you didn't buy it just to make a gain;

The trick is that I wasn't living there, but I wasn't renting it either and I still was paying for it. Of course, I haven't done it to make!a gain, it was just unlucky circumstances.

The other thing is that we are not selling the flat, he is just buying me out.

I would really appreciate!your advice.

Thanks,
Kamala

Did you live in it for the first year before you split up?

If you lived in it for a year, that part is tax-free plus you'll get the benefit of principal private residence relief which also gives you the last 18 months tax-free if you ever lived there. So if it has been three years you would get 12m + 18m tax-free and only pay tax on a gain on effectively the 6 months in the middle.

Once you work this out you might find the gain is below your annual allowance anyway.

G_M

as gingercordial says abbove.

But basically it was not your main home forthe last 2 years. The fact you dd not let it out makes no difference.

Kamala

Hi,

Thank you, both for your responses. I think I moved out after around 9 months (we bought the flat in December and I started to rent another flat in September). What can I do in this situation?

Thanks a lot for your help,
Kamala

00ec25

it ceased to be your main home 9 months after you purchased it. Fact

for the last 2 years you have not been living in it as your main home, you have in fact been living elsewhere (the fact that elsewhere was rented is irrelevant)

you are now disposing of your share of the flat to your ex boyfriend, That means CGT liability is triggered, for which you will get relief for 9 months + a further 18 months out of the total period you have owned it.

how much is he paying you for your share?

Kamala

Thank you for your response. I think I'm getting my head around it.

The flat was bought for £248 500. It's estimated now to be worth £301 000.
The gain: £52 500 / 2 = £26 250

He is also covering the amount I paid towards the mortgage which is going to be around £6000 (I'm not sure if that part would be treated as gain though).

All together I will get around £32 250.

I've lived in the flat for 9 months, but we own it for 38 months.

Again, thanks for your help!

pjcox2005

So based on that:


The 9 months you lived there plus the final 18 months of ownership will be exempt, being 27 months.


Therefore 11 of the 38 months aren't covered by any relief and it is this proportion of the gain which will be taxable (11/38 = 28.95%)


Based on the calcs I'd say the £6,000 is part of the capital gain you are making so £32,250 less your proportion of buying and selling costs (e.g. stamp duty, legal fees).


Assuming those are zero (which won't be the case) then £32,250 times 28.95% is a taxable gain of £9,336.


If you've not made any other gains in the current tax year then your capital gains exemption of £11,300 can be offset against it.


So the outcome is no tax to pay as the full taxable gain is offset by your personal exemption.

Kamala

Thank you very much for all your help.

saajan_12

Kamala wrote: »

Thank you for your response. I think I'm getting my head around it.

The flat was bought for £248 500. It's estimated now to be worth £301 000.
The gain: £52 500 / 2 = £26 250- you can also subtract your share of buying / selling costs (e.g. solicitors fees, EA, valuation costs..) and any capital improvement costs (e.g. building an extension) from your gain.

He is also covering the amount I paid towards the mortgage which is going to be around £6000 (I'm not sure if that part would be treated as gain though).- that's generous, if you're both happy with it then fine but you're benefitting from half the appreciation, with no mortgage interest that was needed to fund the purchase, and having lived rent free.

All together I will get around £32 250.

I've lived in the flat for 9 months, but we own it for 38 months. - so you'll have Private Residence Relief for the 9 months you lived there plus last 18 months of ownership (assuming no overlap) thats 27 months, ie 27/38 of your total ownership.

Again, thanks for your help!

Gain = Sale price - Purchase price - buying/selling costs ~ 32,250

You have PPR for 27/38 of that (9 months of residence + final 18 months with no overlap, of total 38 months ownership)

You have an annual allowance of ~11.3k

You have never let the property so no lettings relief.

Taxable gain = min (0, £32,250 - 27/38 * 32,250 - 11300) = 0

So no CGT due.