I have a hypothetical CGT question on a property.

katy123

 If someone purchased a house as their main residence 120 months ago at a cost of £100k and it is worth £200k, the gain is exempt as their main residence. However, if they move out month 120 and sell it in month 144 (12 yrs from purchase) and the house has reduced to £180k. Because the final 9 months is exempt, am I right in thinking that 15 months is taxable (144-120-9). Therefore 15/144 = 10.42% of £80,000.00. Seems a bit unfair that in reality, the property has reduced by £20k but still have taxable gain of ££8,336 (ignoring CGT allowance). The better option was to sell it in month 120.

AnotherJoe

Fairness has little to do with tax, and the house price at month 120 was theoretical only.

 

Keswick1uk

Yes, that was the best time to sell it....with hindsight! Not because of Tax, looks likes there may be nothing to pay if they've not sold other assets, but because the value fell.

Well we can all say that about our investments at times! Especially my BT shares which I should have sold at 5 pounds!

ProDave

HMRC take the total gain from purchase date to sale date and assume linear growth throughout the period of ownership. No saying "but prices did not rise in that period"

ALL the time you live in it is exempt from CGT plus the last 9 months regardless of use.

So it will only be liable for CGT on the rented period less 9 months.

So in your case the CGT due will be less than £10K  So it is less than your CGT personal allowance so no tax is actually payable (unless you have used up that years CGT allowance elsewhere) but it still as to be declared.

If it is jointly owned, then you are each liable for half the gain, and you have 2 lots of CGT allowance to use up.

Of course the rental income you have received must be declared as income and you will be charged income tax on that, you have declared that haven;t you?

saajan_12

katy123 said:

 If someone purchased a house as their main residence 120 months ago at a cost of £100k and it is worth £200k, the gain is exempt as their main residence. However, if they move out month 120 and sell it in month 144 (12 yrs from purchase) and the house has reduced to £180k. Because the final 9 months is exempt, am I right in thinking that 15 months is taxable (144-120-9). Therefore 15/144 = 10.42% of £80,000.00. Seems a bit unfair that in reality, the property has reduced by £20k but still have taxable gain of ££8,336 (ignoring CGT allowance). The better option was to sell it in month 120.

They were welcome to sell it in month 120. 
If they chose to retain it as an investment, thats up to them, and that carries risks not just on the tax, but also the actual value, repairs needed, tenants, etc etc.

If they do retain, then the the only 2 market-tested valuations are at purchase and sale, so the gain is assumed to be linear between those. Without further information, you can't track a different change in valuation, and appraisals are very subjective. So the 'fair' thing for everyone else might be to not let people submit a cheeky valuation which is difficult to prove or disprove, and have that affect tax paid (unless unavoidable eg for gifts).