CGT on rented property

weimo

Grumpy_chap said:

I think you should live in the house where you will be happiest and the best quality of life.  Then just pay the taxes that result as they arise.  To choose your residence as a tax avoidance / minimisation tool is the wrong priority.

Absolutely - although I'm not so happy where I am atm, so was thinking I could sell, live in the other property and then sell that when I thought CGT would cease(as I have misunderstood the rules around this will not be happening)......then pool all the funds and purchase something I really wanted. 

Mickey666

What about main residence nomination?

This government guidance suggests that "If you nominate a property as your main home you qualify for relief for most of the time you live away"  https://www.gov.uk/tax-sell-home/nominating-a-home

Plus some interesting info here: https://www.property-tax-portal.co.uk/taxarticle42.shtml

Also, I understand there are various other reliefs when calculating CGT on a second home, ie one not nominated as a main residence, such as the first two years of ownership and the last 18 months of ownership. . . . or something like that, can't now find where I read that.

Might have been here: https://www.thisismoney.co.uk/money/mortgageshome/article-7781103/Second-home-buyers-warned-watch-new-capital-gains-tax-grab.html

Might be worth paying an IFA for some real advice rather than just chatting on a forum.  Nothing wrong with forums for sounding things out but when serious money is at stake professional planning is probably safer.

Mickey666

Jeremy535897 said:

Mickey666 said:

In this sort of situation, supposing the OP lives in the house for quite a few more years, what's the process when it comes to selling?  I know it's our responsibility to inform teh taxman of any tax liabilities, but on the other hand, most people are not tax experts and can't be expected to know all the tax rules.  I know that doesn't really let people off the hook but that's the reality.   So the OP sells his current house as normal and because it's his main home there is no CGT payable.  Everyone knows that, right?  So he moves into his new main home for, say, five years or more and when he sells it . . . what?  He suddenly has to 'know' he has a CGT liability and must tell the taxman?  Or does he not bother because we all 'know' our main homes have no CGT liability.  Is there any mechanism by which the taxman is notified of the CGT liability?  I can't recall ever being asked when I bought a house I've sold or how long I've lived there, so there seems to be no audit trail.  Sure, they could find out by digging through the OPs financial history if they choose to, but how likely is that to happen?

Just wondering.

From 6 April 2020 you have to complete a return and pay the capital gains tax due within 30 days of completing the sale of residential property. If you had rental income and it ceases, HMRC may ask why. Stamp duty records and changes in Land Registry records are all ways of HMRC identifying a sale, plus the investment of the proceeds.

According to this: https://www.bdo.co.uk/en-gb/insights/tax/private-client/earlier-capital-gains-tax-filing-and-payment-dates-for-uk-residential-property-disposals , you MAY have to file such a return, but not if you qualify for full PPR relief, so it remains confusing for the average person as I outlined.  Again, I know that is no defence.  Plus, as the article points out, even though you now have to file a tax return within 30 days of a sale "It will be common for individuals not to know precisely what their CGT liability will be at the time of the sale and indeed, some of the relevant information may not be known until after the end of the tax year. For example, this could be the case where the tax liability depends on other disposals or other income in the same tax year."

It's getting to the point where the man on the Clapham omnibus won't be able to do anything for himself without hiring a bunch of lawyers, accountants, IFAs etc - assuming we're not already there yet!

Jeremy535897

An IFA won't advise on capital gains tax. You need an accountant or tax adviser.
You can't nominate a house you don't live in as your main residence. That is only relevant where you live in two homes at the same time.
Only the last 9 months of ownership is exempt, not 18 months, and OP would have physically occupied the property in those months anyway. There is no rule covering first 2 years of ownership. There are some other exemptions but you need to occupy the property as your main residence both before and after such periods, so they aren't relevant.
The property has not been the OP's main residence throughout his ownership so the 30 day rule on filing returns applies.

I agree most people will not be able to work out the correct rules on selling a property like OP's.
EDIT It occurs to me that the two year period you mention is actually the period you are given to choose between two properties where both could be your main residence (for example a flat near work during the week, and a house occupied by family all week and you at the weekend).

weimo

Mickey666 said:

Might be worth paying an IFA for some real advice rather than just chatting on a forum.  Nothing wrong with forums for sounding things out but when serious money is at stake professional planning is probably safer.

Absolutely what I was doing, just sounding out the general consensus / rules from people more knowledgeable than I on this subject. Yes I would seek advice from a tax adviser before committing to any decision fully. From what has been described here I do not think it is in my interest to sell the rental property due to the significant CGT liability, I am not in desperate need of the cash, I am more exploring different approaches to changing my current residential property. Admittedly the net returns on the rental property are pretty poor 1.7%(based on 300k), this is mainly due to my tax status and equivalent to what I'd receive in a high interest account, but I cannot grumble about the capital growth, its been excellent even with a CGT bill. Thank you for all the contributions, I've definitely learned a CGT lesson here. 

Mickey666

The main thing is that you're thinking and planning ahead.  The other thing to remember is that because you inherited the house you're already 'quids in' regardless of any CGT you may eventually have to pay.  No one like paying tax but you don't really lose anything because the tax payable was never really yours in a practical sense, so nothing is being taken away from you as such . . . it just seems like it sometimes!

One other thing I dont think has been mentioned is that you also have a personal CGT relief, around £12k I think, so that can be netted off any CGT liability when the time comes as well. 

Jeremy535897

Mickey666 said:

The main thing is that you're thinking and planning ahead.  The other thing to remember is that because you inherited the house you're already 'quids in' regardless of any CGT you may eventually have to pay.  No one like paying tax but you don't really lose anything because the tax payable was never really yours in a practical sense, so nothing is being taken away from you as such . . . it just seems like it sometimes!

One other thing I dont think has been mentioned is that you also have a personal CGT relief, around £12k I think, so that can be netted off any CGT liability when the time comes as well. 

See page 2 of posts where CGT annual exemption is addressed (£12,300 for 2020/21).

weimo

Yes I was already aware of annual CGT allowance, but thank you for mentioning in this thread. 

weimo

Ultimately I am just trying to do things in the most tax efficient way, but this can be a pointless exercise as the tail ends up wagging the dog so to speak!

advocate70

Good morning, I bought a property 21 years ago to rent out, but looking to sell now. I declare all income etc on my self assessment.  Would this sale qualify for business asset disposal relief or would it be simply CGT on sale of property ?
Thanks