Capital Gains Tax - Changes regarding Sale of Property

Sad_Dad

Hi,

Please excuse my ignorance on this subject.

Today I read an article on the changes (announced in last years budget) to the CGT calculation that come into effect in April 2020.

https://www.menzies.co.uk/april-2020-capital-gains-tax-changes/

If I had seen the proposed changes at the time we (my wife and I) would have attempted to sell our previous home that we are currently renting out. I think it would be too late now to market and sell the property before April.

From my rough calculation it looks like after April 2020 we will get hit with a CGT bill of around £20k should we sell the house in the future.

My calculation is based on the house we bought in 1996 for £80,000 and an estimated current valuation of £280,000.

Would it be possible in lets say 5 years time (when all our children will no longer be living with us) to sell our current house and move back into our previous home? The CGT bill on the sale of our current home should be a lot less assuming the rules have not changed dramatically and our current house has not increased in value by £200,000.

Looking further into the future (e.g. at retirement age) could we for instance move again from our previous family 4 bedroom home into a more suitable property (e.g. a small bungalow) and at this point 'gift' rather than sell the 4 bedroom house to one of our children who by this time may be in need of a family home and thus avoid a large CGT bill.

I might be over thinking this and there might be better options available but I would be extremely helpful for any help.

Thanks for reading.

00ec25

Sad_Dad wrote: »

From my rough calculation it looks like after April 2020 we will get hit with a CGT bill of around £20k should we sell the house in the future.

My calculation is based on the house we bought in 1996 for £80,000 and an estimated current valuation of £280,000.

without the rest of the data we can't say if your estimate is right

Sad_Dad wrote: »

Would it be possible in lets say 5 years time (when all our children will no longer be living with us) to sell our current house and move back into our previous home? The CGT bill on the sale of our current home should be a lot less assuming the rules have not changed dramatically and our current house has not increased in value by £200,000.

if it is your current home then when you sell there will be no CGT to pay since it would appear it has been your main home for the entire time you owned it

moving out "current" and into "old" before selling "current" will simply result in current acquiring a potential liability if you take longer than 9 months after moving out to sell it

whether that liability translates into a net taxable gain, and so actually results in tax, cannot be said without knowing the numbers

moving into the "old" as your main residence will simply increase the period of private residence relief for that property, but it will still be liable for the period when it wasn't the main residence.


However, there is undoubted logic in ensuring that the property liable to CGT is the one with the lowest gain. Whether that gain arises by dint of being longest non main residence or most expensive property and thus one most likely to see biggest value increase (or both of course!)

Sad_Dad wrote: »

Looking further into the future (e.g. at retirement age) could we for instance move again from our previous family 4 bedroom home into a more suitable property (e.g. a small bungalow) and at this point 'gift' rather than sell the 4 bedroom house to one of our children who by this time may be in need of a family home and thus avoid a large CGT bill..

CGT is levied on the disposal of an asset. Disposal means sale or gift

where the gift is to a connected person (eg your children) the CGT must be calculated using market value, not some discounted made up number

Sad_Dad

Thanks for your reply, it is really helpful.

I have used the calculator on the HMRC website to get the £20,000 potential CGT due if we sell our 'old' house after April 2020.

One thing I wasn't sure of were the deductions for house improvements. We extended our 'old' house from 2 to 4 bedrooms so those costs can be taken into account but I believe a new bathroom, kitchen, conservatory, double glazing, all replacing existing cannot be deducted.

I have not deducted any Letting Relief as that will no longer be applicable. I had to calculate the Private Residence Relief myself as I could not find a calculator for that, but I think I have calculated it correctly.

When the time comes to sell our current 'new' house (which has been our main and only residence since we moved from the 'old' house) as long as we can sell it within 9 months of moving back into our 'old' house the good news is that we don't pay CGT on that sale, I didn't realise that.

The longer we stay in our 'old' house, the less the CGT will be so more good news. Obviously we will have to pay the CGT at some point but we have some options / flexibility.

Another option in the future would be to downsize from our current 'new' house to a different house and rent out the 'old' house until we die or are unable to. I guess our children will get hit with a big inheritance tax bill, no idea how IHT works but I am not going to worry about that now.

It's probably a good idea to speak to a financial advisor at some point so I can plan this.