Moving back to the rental property

J_forest

Hello!

First of all I like this website. There are so many informative tips here and the members are so helpful!

Now I have a couple of questions and I would like to know your thoughts.

My husband and I bought a property (A) in 2007 for £130,000 and paid it off in 2016. In the same year we mortgaged a new home (B) so it is close to our child's new school, the market price was £140,000. We have had to pay extra stamp duty etc.

Our child will be finishing this school in a few years time and we plan to sell this current home (B) and move back to our first property (A).

The situation is, A has been rented since 2016. According to the house prices in both areas, we predict the market value by the time of sale would be similar.

1. Do we need to pay anything if we sell B and move back to A? We plan to retire there.
2. If we do not need to pay anything, we sell A after staying there another 5 years, then buy a new one, is there any tax we need to worry about?

Many thanks

Janet

00ec25

1 no

2. yes, pay CGT

J_forest

Thank you, 00ec25.

It's what I have thought after reading HMRC's info as well as the posts online. However I am just unsure because it is something we do not want to make mistake - we have borrowed 85% of the value of B from the bank and have done a lot of work in the house. If we have to pay again when we sell it or pay something for having A back, it's painful even just thinking about it...

AnotherJoe

Why do you think you would have to pay anything when you sell B (other than normal EA and solicitors fees?) What do you think that would be? There isn't anything. It's your main residence and always has been oniy that, there's been no rental period. . Thee are no taxes to pay when selling that. Same for when you move into A. Where have you read there is something to pay when moving back into A? (There isn't)
As and when you eventually sell A there might be some CGT to pay. There will be CGT to be calculated but that might end up being zero depending how long you live there and what house prices end up as.

J_forest

Good morning!

I am always a worrier. The reason I think we might have to pay for selling B is that we will need time to renovate A before selling B. The during the months for renovation, e.g. full electric rewiring, summer house and possible solar panels, we will then own 2 properties at the same time while B remains our primary home. HMRC states no tax for selling the primary home, however if the transaction goes wrong and we end up naming A is our primary home while selling B, will there be CGT?

From what I have understood, if you have two or more properties, you pay CGT on the one that is not your primary home when it is old. Is it correct?

Back to my case. If everything goes well and we decide to sell A after living there for 5 years as our primary home, what CGT would be? Say, we sold it for £230K. The purchase price was £130K in 2007, we lived there for 9 years from 2007 to 2016, then it was rented for 8 years from 2016 to 2024, at last we lived there again for another 5 years from 2024 to 2029. Is there a formula for the calculation?

I also would like to know:

Q1. A is our primary home by the time, why we need to pay CGT? Was it because it was ever rented?
Q2. If we have to pay CGT, is there anything that can be deducted from the £230K besides the purchase price £130K? The condition of A was unlivable when it was bought, some of the big expenses included new windows, doors, central heating system and a new conservatory. Can these be deducted? How about the later electric rewiring, summer house and solar panels?

Thanks again!

Janet

AdrianC

J_forest wrote: »

I am always a worrier. The reason I think we might have to pay for selling B is that we will need time to renovate A before selling B. The during the months for renovation, e.g. full electric rewiring, summer house and possible solar panels, we will then own 2 properties at the same time while B remains our primary home.

But that's been the situation since 2016...

From what I have understood, if you have two or more properties, you pay CGT on the one that is not your primary home when it is old. Is it correct?

Yes.


B has always been your home. No CGT.
A was your home 2007-2016, was not your home 2016-2019, will be your home 2019-on. There may be CGT to pay for the period 2016-19, but only when you eventually sell it.

Back to my case. If everything goes well and we decide to sell A after living there for 5 years as our primary home, what CGT would be?

I have no idea what CGT changes there will be in the future. The relevant CGT law will be that in force at the time of sale.

Q1. A is our primary home by the time, why we need to pay CGT? Was it because it was ever rented?

Yes.

Q2. If we have to pay CGT, is there anything that can be deducted from the £230K besides the purchase price £130K? The condition of A was unlivable when it was bought, some of the big expenses included new windows, doors, central heating system and a new conservatory. Can these be deducted? How about the later electric rewiring, summer house and solar panels?

But they were done when you lived there, for which period there's no CGT anyway. Did you make any substantial improvements during the period it was not your home?

AnotherJoe

J_forest wrote: »

Good morning!

I am always a worrier. The reason I think we might have to pay for selling B is that we will need time to renovate A before selling B.

So? Why is that relevant?

Then during the months for renovation, e.g. full electric rewiring, summer house and possible solar panels, we will then own 2 properties at the same time while B remains our primary home.
So B remains your primary home so why raise an issue?
HMRC states no tax for selling the primary home, however if the transaction goes wrong and we end up naming A as our primary home while selling B, will there be CGT?
Why on earth would you end up naming A as your primary home when you dont live there??? What does "the transaction goes wrong" mean? You appear to be trying to create issues where there are none.

From what I have understood, if you have two or more properties, you pay CGT on the one that is not your primary home when it is sold. Is it correct?
Not really. If a house has always been your primary residence whilst you owned it, theres no CGT. If it hasnt always been, and you let it out or lived elsewhere then it may be eligible for CGT. So you could have several houses and pay CGT on all of them if you hop from one to the other renting the previous one out. .There may of course not be any to pay. The last 18 months of the rental dont count for example.

Back to my case. If everything goes well and we decide to sell A after living there for 5 years as our primary home, what CGT would be?
Say, we sold it for £230K. The purchase price was £130K in 2007, we lived there for 9 years from 2007 to 2016, then it was rented for 8 years from 2016 to 2024, at last we lived there again for another 5 years from 2024 to 2029. Is there a formula for the calculation?
Yes, its on the HMRC website somewhere. Of course as AdrianC says the rules may change in another 5 years time.

I also would like to know:

Q1. A is our primary home by the time, why we need to pay CGT? Was it because it was ever rented? Yep otherwise you could evade CGT on rentals by living there for 10 minutes and then selling.
Q2. If we have to pay CGT, is there anything that can be deducted from the £230K besides the purchase price £130K? The condition of A was unlivable when it was bought, some of the big expenses included new windows, doors, central heating system and a new conservatory.
A new conservatory is needed to make a house "livable" ? LOL. Can these be deducted? How about the later electric rewiring, summer house and solar panels?
You cannot deduct anything you did while you lived in it. Stuff that was done for renting, there are rules. I dont know what they are but I am confident they dont include conservatory and solar panels !!!


Thanks again!

Janet

extra text

00ec25

J_forest wrote: »

Q1. A is our primary home by the time, why we need to pay CGT? Was it because it was ever rented?
Q2. If we have to pay CGT, is there anything that can be deducted from the £230K besides the purchase price £130K? The condition of A was unlivable when it was bought, some of the big expenses included new windows, doors, central heating system and a new conservatory. Can these be deducted? How about the later electric rewiring, summer house and solar panels?

1. CGT is based on occupation.
For a period it was not your main home, therefore, for a period, it is liable for CGT. Such liability is based on the % of time of total ownership
please read the rules for yourself, as these are facts that just need reading, not spoon feeding
https://www.gov.uk/capital-gains-tax

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

2. the rules change in April 2020. The availability of letting relief prior to that date has yet to be confirmed - but it appears that it will cease and there will be no retrospective element

with the exception of a "new" conservatory (as in there was no conservatory before) all other costs you list are not capital costs, they are all revenue costs that are not deductible,

J_forest

Hi Adrain,

Thank you for taking time to reply.

If we sell A now, how to work out the CGT?

On the other hand, do you mean only the expenses that we spent on the house for tenants are deductible?

Sorry I do not know how to quote the relevant contents.

Kind regards

Janet

J_forest

Hi Joe,

You cannot deduct anything you did while you lived in it. Stuff that was done for renting, there are rules. I dont know what they are but I am confident they dont include conservatory and solar panels !!!

Thank you for your new message. Now I understand that any house improvements that are not made during tenancy cannot be claimed. The reason that I asked was because I think the estimated house value (£230K) is mainly by the improvements we have made over the years plus slow house market price raising. If the government just takes a percentage out of the difference (£230K - £130K), it is not fair - whatever the house has been rented or not, all taxes have been paid.

Kind regards

Janet

J_forest

Hi 00ec25,

The second link seems to have a lot of info that I did not know about.

Thanks:j

Janet