BTL capital gains rules?

hamptons

A few years ago I understood that there was a change to treatment of BTL properties and I was advised to get a formal RICs valuations as at 6 April 2015.

I had 2 properties being rented. One had always been a BTL since purchase, the other was our home for 2 years but I had to relocate overseas for work so rented the property out and it has been let out ever since.

The figures are:
Property 1
Purchased Oct 1997 £71,000
RICs value April 2015 £300,000
Market value estimate now looking online £300,000 - £350,000
Rented Oct 1997 to date

Property 2
Puchased July 2004 £320,000
RICs value April 2015 £600,000
Market value estimate now looking online £580,000 - £650,000
Primary residence 2 years July 2004 - July 2006
Rented July 2006 to date

Both are now less viable as BTL than they used to be so we may have to consider selling No 1. We may have to also sell No 2 but will try to keep it as we would live there again if we had to return to the UK.

Under the current rules what CGT would we pay on No. 1 and how to calculate it?

What CGT would we pay on No. 2 if we sold that now? If we did return and used No 2 as our primary residence again, how would that change the CGT calculation under current rules?

saajan_12

Try the calculation yourself following the explanation below, and if you set it out we can help correct. You'll need
- purchase price
- selling price
- buying / selling costs (eg solicitors, agents, major works costs which would increase property value and not claimed as deductions from rental income)
- dates bought & sold
- dates of occupation
- dates of letting
- other capital gains made in the year you sell
- total other income in the year you sell

saajan_12 wrote: »

Yes, start with the gain in house value between value at purchase and sale, less buying/selling costs. Then you get specific allowances / reductions:
1) PPR for the proportion of time it was your primary residence out of the total time you owned it. You're assumed to have lived there for the last 18 months if you did previously, so make sure to include that but not double count it. Roughly 2 years / 11 years = 18% but the calc must be in months.

2) Lettings relief for the proportion of time it was let, capped at the lower of the PPR and 40k. Roughly min(9years / 11 years , 18% , 40k) = min (18%, 40k) as clearly 9 years/11years = 81% is higher than 18% so you go with the lower value.

3) Annual allowance 11.7k this year, assuming you haven't made any other capital gains (ie sold any investments) this tax year.

So your taxable gain is Sale - Purchase - Costs - PPR - LR - AA. On this you pay tax at 18% for the proportion under the higher rate threshold (once combined with your other income) and 28% on the proportion above the threshold.

AnotherJoe

Just a tiny addition to that, If its jointly owned then OP can x2 for CGT allowance.

hamptons

Thank you for the method.

I don't understand this part "You're assumed to have lived there for the last 18 months if you did previously, so make sure to include that but not double count it. Roughly 2 years / 11 years = 18% but the calc must be in months."

We did live there previously (for 2 years) but we cannot claim for living there the last 18 months (as we have not). But if we did return to the UK and lived in the property for 18 months (or more), then does that mean the total time in the property becomes 3.5 years (2 years + 18 months) or we cannot claim the last 18 months if we also claim the previous 2 years?

On the property that was BTL from 1997 to date - we did in fact live there for a couple of months (and were registered on the Voters Roll there at the time) because we had already rented out our home just before we left the UK and so moved into the BTL for a couple of months. Does this mean we can claim 2 months "relief" at the BTL property too (not much over 21 years but still...)?

I see that the gain appears to be from the original purchase price? What happened to the price as at 5 April 2015 as being relevant for calculating capital gains? I paid for 2 RICs valuations at the time because I was told the value as at April 2015 would be used as part of the calculation for capital gains.

The jointly owned to claim 2 x CGT allowance. When does the property need to be in joint ownership - at the time of purchase, or at the time of sale? Can a sole owned property be transferred to joint ownershi with spouse prior to sale (subject to mortgage lenders agreement if necessary) to claim 2 x CGT?

Slithery

hamptons wrote: »

I see that the gain appears to be from the original purchase price? What happened to the price as at 5 April 2015 as being relevant for calculating capital gains? I paid for 2 RICs valuations at the time because I was told the value as at April 2015 would be used as part of the calculation for capital gains.

Who told you this?

hamptons

It was widely written about at the time
The new regime for non-resident capital gains tax
https://www.taxation.co.uk/Articles/2015/04/07/332875/keep-it-uk

AnotherJoe

hamptons wrote: »

The jointly owned to claim 2 x CGT allowance. When does the property need to be in joint ownership - at the time of purchase, or at the time of sale? Can a sole owned property be transferred to joint ownershi with spouse prior to sale (subject to mortgage lenders agreement if necessary) to claim 2 x CGT?

By the time of sale as long as its a spouse. And yes AFAIK needs mortgage co approval.

saajan_12

hamptons wrote: »

Thank you for the method.

I don't understand this part "You're assumed to have lived there for the last 18 months if you did previously, so make sure to include that but not double count it. Roughly 2 years / 11 years = 18% but the calc must be in months." - note the numbers in my quote are for a different example. But for a property you lived in as your main residence, you get PPR relief for the time you lived there AND the last 18 months of ownership (will become 9 months when new rules come in 2020)

We did live there previously (for 2 years) but we cannot claim for living there the last 18 months (as we have not). But if we did return to the UK and lived in the property for 18 months (or more), then does that mean the total time in the property becomes 3.5 years (2 years + 18 months) or we cannot claim the last 18 months if we also claim the previous 2 years? - You get PPR for 24 months + last 18 months = 42 months. Any lettings relief would exclude the last 18 months. Effectively, you pretend you lived there for the last 18mths before selling.

On the property that was BTL from 1997 to date - we did in fact live there for a couple of months (and were registered on the Voters Roll there at the time) because we had already rented out our home just before we left the UK and so moved into the BTL for a couple of months. Does this mean we can claim 2 months "relief" at the BTL property too (not much over 21 years but still...)? - There's no firm rules, but a main residence should have an expectation of permanence. Were you already planning to move abroad before moving into the BTL? Also you can't claim PPR in two places for the same period.

I see that the gain appears to be from the original purchase price? What happened to the price as at 5 April 2015 as being relevant for calculating capital gains? I paid for 2 RICs valuations at the time because I was told the value as at April 2015 would be used as part of the calculation for capital gains. - No, you use the original purchase price (plus certain costs) and any gains are assumed to have happened linearly over the total period of ownership.

The jointly owned to claim 2 x CGT allowance. When does the property need to be in joint ownership - at the time of purchase, or at the time of sale? Can a sole owned property be transferred to joint ownershi with spouse prior to sale (subject to mortgage lenders agreement if necessary) to claim 2 x CGT?- depends on who the joint owners are..

For strangers, if A owns 100% but then gifts B 50%, A would pay CGT on the market value of the gifted portion, (using their AA that year). If/when they both sell, A's gain is calc'd on their 50% of purchase price, B's gain is calc'd on the market value of their 50% share when they received the gift, and has the AA to use against that. Effectively, no benefit to transferring unless the transfer and sale can be in different tax years.

For married couples however, the transfer can be free from CGT and the new owner can inherit the original owner's purchase price, depending on the timing of the purchase & marriage. Then the couple can sell with 2x allowance, only paying 1 lot of CGT.

hamptons

I have checked on HMRC website and it looks like the gain for non residents is calculated as from April 2015. I will run the figures accordingly and see what result that gives.