Its my only property - Surely there is some way of avoiding CGT??

Trix26

Hi all,

I know you get a lot of CGT questions on here, but Ive read many of the other threads, none seem to match my situation, so any advise would be greatly appreciated

Here goes. I attempted to get on the property ladder a few years back, but only at age 20 and not earning vast amounts, the only mortgages open to me were a 'buy to let'

So in March 2005 I got a mortgage for £100k and brought a house worth £113k. I then spent a further £7k on things like sols fees, stamp duty etc and renovated the house a little. So the total investment is more like £120k

I rented it out for a few years (myself still living at home with the parents) but now the tenants have gone Im going to sell. The estate agents say I should market the house for more, but expect offers in the region of £155k for a quick sale

Although, the actual amount I'd be left with would be more like £145 after paying estate agent fees, sols, H.I.P and my mortgage cancellation fees.

So, Im left in quite a dilemma.

1st - I didnt think I would have to pay CGT as it was my only property, but as I havent actually been living there, would I still be liable?

2nd - If so, how much of it would they tax me on. Although I brought it for £113k and hope to sell for £155, could I deduct the costs of buying and renovating from the profit (as I still have most of the receipts). And would I be able to deduct the charges from selling, all the estate agents fees, and mortgage cancellation costs?

3rd - At what % would it be taxed? I understand you can gain approx £7k before they start taxing it, but how much is it there after? As I’ve been told it could be as high as 40%!?

A bit of a long one I know, but pearls of wisdom would be wonderful

Trix26

Well the gas & elec are on key meters, so no bills for those.

But I have water bills from before my tenants moved in (Mar - May 05) and new ones since they left in Oct.

Ive also got council tax bills from before & after my tenants, but they are all for £0.00. The bills were/are exempt as the house is empty and unfurnished. So not really helping me to look like Ive ever lived there

morgani

Yes you are liable as it was not your main residence.

Yes you can deduct all costs of purchasing and selling (i.e. solicitors costs, estate agent fees, this does not include the rental fees charged by the letting agent it is purely the purchasing and selling expenses).

As for renovation thats a bit more tricky. If you had a repair to an existing boiler that would be allowable. Howeve if for example there was no boiler and you put one in this would not. So you would need to consider carefully the expenses you have and if they are allowable or not.

The % at wich you would be taxed would be dependant on your income.
If you are a higher rate tax payer or if you are close then it will be at 40%.

To be close your salary and income would need to be almost £40k

Starting rate 10%.......0 - 2,230
Basic rate 22%...........2,231 - 34,600
Higher rate 40%..........over 34,600

The exempt amount is actually £9200

CLAPTON

Yes, you are liable for CGT on the sale although you can claim all the buying and selling costs and you can claim for any improvments.

so e.g. if you buy at 113 and you sell at 155 but have 7k+ 10k of costs then your gain is 25k.
less your cgt allowance of 9,200 gives 15,800

if you are married then you could transfer half the house to her and use her 9,200 as well... i.e reducingthe gain to 6,600.

If you sell this tax year you will pay tax at 10%, 20% or 40% .. its added to your income and taxed at the above rates...

If you wait until after 6 april 2008 then the CGT rate become a flat rate of 18%.

You could of course move into the house and live there ... although there is no specific time you need to live there it has to be your principal residence.. utilities, council tax, electoral roll, bank a/c etc at that address. (probably think at least 6 months) then you have additional allowances which in practice would reduce CGT to zero.

Trix26

So its not as bad as I first imagined.

Its the not knowing that makes me worry, so thank you all for explaining it

guppy

Does it have to be the OPs main residence for the whole period? Or can he move in for a while before selling?

CLAPTON

guppy wrote: »

Does it have to be the OPs main residence for the whole period? Or can he move in for a while before selling?

no, it doesn't have to be his principal residence for the whole time to gain tax benefits but it does have to be his principal residence .. simply living here while selling would probaly not be acceptable.

EdInvestor

If you moved in now and stayed for at least 6 months or so you would not have any CGT to pay as the last 3 years are free if the house has been your PPR at any point.