CGT on rented property

weimo

Hello all,

Hopefully someone could shed some light on my situation. I purchased my current house in 2006 and have lived in permanently since, my grandfather passed away in 2012 and I inherited his house. I have been renting it out ever since. A situation has arisen and one option I would like to explore is selling my current house purchased in 2006 as I will not pay any CGT on this sale. But then following on from this I would like to move in to the rented property. Does anyone know the time I would need to reside in the rented property in order to sell this asset also and be free of CGT as this would now be my primary residence?

Jeremy535897

weimo said:

Hello all,

Hopefully someone could shed some light on my situation. I purchased my current house in 2006 and have lived in permanently since, my grandfather passed away in 2012 and I inherited his house. I have been renting it out ever since. A situation has arisen and one option I would like to explore is selling my current house purchased in 2006 as I will not pay any CGT on this sale. But then following on from this I would like to move in to the rented property. Does anyone know the time I would need to reside in the rented property in order to sell this asset also and be free of CGT as this would now be my primary residence?

Your entire period of ownership is looked at, so as you have already owned the property for eight years, if you now live in it for eight years as your main residence, under current rules you would pay tax on half the gain (after any annual exemption)..

weimo

OK so this changes things......I was under the impression say if I lived there now for 2 years, there is no CGT to pay, as it would then be classed as my primary residence. From what you say ^ I would have to live there indefinitely to avoid it all together. This really has buggered my plans up. To put this in context the property was seriously in need of renovation which I did, I would expect the gain to be 150k so this isn't pocket change as a higher rate tax payer.

Jeremy535897

You should keep proper records of all improvement expenditure, including any bills and where they were paid from, because the cost of improvements (as opposed to maintenance and repairs) can be added to the value of the house when you inherited it, to give you your base cost, which is deducted from the proceeds (net of selling costs) when you sell it.

Living indefinitely cannot make the gain go away totally, although dying does.

[Deleted User]

So the gain is: Sale proceeds less costs of sale less value at grandfather’s death less cost of renovations/improvements Is this still 150k?

weimo

purdyoaten2 said:

So the gain is: Sale proceeds less costs of sale less value at grandfather’s death less cost of renovations/improvements Is this still 150k?

I've already used the renovation costs to offset tax of rental income, so doubtful I could use this again. Value of property at death 150k I would expect sale figure of 300k. The renovation costs were 30k but I did most work myself over an 18 month period. 

[Deleted User]

weimo said:

purdyoaten2 said:

So the gain is: Sale proceeds less costs of sale less value at grandfather’s death less cost of renovations/improvements Is this still 150k?

I've already used the renovation costs to offset tax of rental income, so doubtful I could use this again. 

Oh dear! You may have a problem as you cannot just set ALL renovation costs against income. It really does depend what you class as renovation but, as you used the word ‘serious’ earlier you may have opened a can of worms.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income#capital-expenditure

weimo

purdyoaten2 said:

weimo said:

purdyoaten2 said:

So the gain is: Sale proceeds less costs of sale less value at grandfather’s death less cost of renovations/improvements Is this still 150k?

I've already used the renovation costs to offset tax of rental income, so doubtful I could use this again. 

Oh dear! You may have a problem as you specifically cannot set renovation costs against income. It really does depend what you class as renovation but, as you used the word ‘serious’ earlier you may have opened a can of worms.

I was advised this was acceptable by an accountant at the time, we are talking new kitchen, new bathroom, new boiler, new carpets etc....complete redecoration. not just a lick of paint. If this work was not done, you could not rent the property. I do not believe it would have been worth me doing this if I planned to sell as my costs would not have been recovered. At the time of death a good example would sell for about 180k, it was only to make the property rentable. I would expect the same would need doing again in 10 years as with most rental properties.
OK the word 'serious', walls were not being pulled down etc...…..
But still back to my original point, I was mistaken to believe CGT liability would disappear if I lived there for a few years etc. So I think my question has been answered. I would not want to live there anymore than a few years, therefore my best bet is to wait until a basic rate tax payer and reassess the situation at this point. 

badger09

weimo said:

purdyoaten2 said:

weimo said:

purdyoaten2 said:

So the gain is: Sale proceeds less costs of sale less value at grandfather’s death less cost of renovations/improvements Is this still 150k?

I've already used the renovation costs to offset tax of rental income, so doubtful I could use this again. 

Oh dear! You may have a problem as you specifically cannot set renovation costs against income. It really does depend what you class as renovation but, as you used the word ‘serious’ earlier you may have opened a can of worms.

....................…..
I would not want to live there anymore than a few years, therefore my best bet is to wait until a basic rate tax payer and reassess the situation at this point. 

That sounds infinitely better than this 

.............................
Living indefinitely cannot make the gain go away totally, although dying does.

Jeremy535897

weimo said:

purdyoaten2 said:

weimo said:

purdyoaten2 said:

So the gain is: Sale proceeds less costs of sale less value at grandfather’s death less cost of renovations/improvements Is this still 150k?

I've already used the renovation costs to offset tax of rental income, so doubtful I could use this again. 

Oh dear! You may have a problem as you specifically cannot set renovation costs against income. It really does depend what you class as renovation but, as you used the word ‘serious’ earlier you may have opened a can of worms.

I was advised this was acceptable by an accountant at the time, we are talking new kitchen, new bathroom, new boiler, new carpets etc....complete redecoration. not just a lick of paint. If this work was not done, you could not rent the property. I do not believe it would have been worth me doing this if I planned to sell as my costs would not have been recovered. At the time of death a good example would sell for about 180k, it was only to make the property rentable. I would expect the same would need doing again in 10 years as with most rental properties.
OK the word 'serious', walls were not being pulled down etc...…..
But still back to my original point, I was mistaken to believe CGT liability would disappear if I lived there for a few years etc. So I think my question has been answered. I would not want to live there anymore than a few years, therefore my best bet is to wait until a basic rate tax payer and reassess the situation at this point. 

With a gain of £150,000 you might consider living in it for some time, as even if your income is within the basic rate band, some or all of the gain will be taxable at the higher rate (28% on residential property). See https://www.gov.uk/capital-gains-tax/rates

weimo

Jeremy535897 said:

weimo said:

purdyoaten2 said:

weimo said:

purdyoaten2 said:

So the gain is: Sale proceeds less costs of sale less value at grandfather’s death less cost of renovations/improvements Is this still 150k?

I've already used the renovation costs to offset tax of rental income, so doubtful I could use this again. 

Oh dear! You may have a problem as you specifically cannot set renovation costs against income. It really does depend what you class as renovation but, as you used the word ‘serious’ earlier you may have opened a can of worms.

I was advised this was acceptable by an accountant at the time, we are talking new kitchen, new bathroom, new boiler, new carpets etc....complete redecoration. not just a lick of paint. If this work was not done, you could not rent the property. I do not believe it would have been worth me doing this if I planned to sell as my costs would not have been recovered. At the time of death a good example would sell for about 180k, it was only to make the property rentable. I would expect the same would need doing again in 10 years as with most rental properties.
OK the word 'serious', walls were not being pulled down etc...…..
But still back to my original point, I was mistaken to believe CGT liability would disappear if I lived there for a few years etc. So I think my question has been answered. I would not want to live there anymore than a few years, therefore my best bet is to wait until a basic rate tax payer and reassess the situation at this point. 

With a gain of £150,000 you might consider living in it for some time, as even if your income is within the basic rate band, some or all of the gain will be taxable at the higher rate (28% on residential property). See https://www.gov.uk/capital-gains-tax/rates

As a basic rate tax payer, how would I be @ the rate of 28%? I thought it would be 18%?