CGT calcs for owner/occupied home, which is later rented out?

pinkpiglit

Hi Guys

I have  query that I hope someone can help with.     

We bought our London flat in 2014 and it’s our main (and only) residence.  However, we are now looking at moving to another country.  We will not sell our London flat immediately.  Reason being that we might hate the new country and want to return to London and we would not be able to afford to buy where we live now.   So, we will give it two full years before making that decision.

We cannot afford to leave the flat unoccupied as we have a mortgage to pay, thus we will need to let it out.  (I understand all the potential pitfalls associated with this).

Can someone help me understand exactly how CGT is calculated in this instance?  I realise it’s based on the valuation gain over the holding period, but I can’t find the actual metrics.  

Is tax based on the pro-rata share of the gain over the entire period.  For example if the value increased by £100k over the total 8 year holding period (12.5k/year), the 2 year share of the gain is 25k and CGT is based on that?  Or can we instruct an RICS valuation on the date we leave the flat, and then we pay CGT based on the difference between that valuation and the eventual sales price, assuming we do sell up two years later.

Thanks !

p00hsticks

The former.

I'm not sure what (if any) the impact of you being non-resident would be though (assuming that you'll only be selling if you decide you like it wherever you're going.)

pinkpiglit

p00hsticks said:

The former.

I'm not sure what (if any) the impact of you being non-resident would be though (assuming that you'll only be selling if you decide you like it wherever you're going.)

Hmmm, good point.  Need to look into that !

bombata

We are in a similar situation so I am interested in hearing what you learned. You are also eligible for 9 months private residence relief. 

bombata

I guess it depends if the country you are moving to as a taxation agreement with the UK

oldbikebloke

if you sell the property whilst a) still living aboard and b) meet the requirements to be non resident for each tax year since you left the UK, your position is:

you will need to split the calculation between gain to 5/4/15 and gain from 6/4/15 using a valuation as at 6/4/15 because you fall under the non resident rule for selling UK residential property 

i) for the period from date of purchase to 6 April 2015 it appears it was your sole main residence and therefore that whole period qualifies for PRR  
ii) for the period from Apr 15, in simple terms, it remained your home for the period until you left the UK, so that period is PRR also.
iii) from the date you left UK and became non resident, it is no longer exempt, so, as you have been told above, the gain from that date is reduced by the PPR for the period since 6/4/15 thus leaving a net gain for the period since you left
iv) I assume you are a UK citizen and therefore will retain the CGT allowance, deduct that from the net gain, and you arrive at your net taxable gain on which tax will charged 

Note, there are several different ways of doing it, you need to choose between various options around the value at Apr 15 which I have not mentioned above, they are detailed and therefore you need to read:
https://www.gov.uk/government/publications/capital-gains-tax-for-non-uk-residents-sales-and-disposals-of-uk-residential-property

also bear in mind that selling while abroad, and then returning to the UK in the same tax year, will cause huge complications over your non resident status. There is also the issue of whether you have actually been non resident for more than 5 tax years, less than that also has implications  

pinkpiglit

bombata said:

We are in a similar situation so I am interested in hearing what you learned. You are also eligible for 9 months private residence relief. 

I will keep you posted! 

pinkpiglit

oldbikebloke said: 

This is very useful - thank you!