Principal private residence

Nick9967

HI all
My wife and I own 2 properties (we both own both) , each has a mortgage .
One is our main family residence (mortgage finishes in 4/5 years)  the other my elderly FIL lives in and we pay the small mortgage on that. (15/16 year mortgage)
We bought the FIL's property 18 months ago (so he could live close and we can take care of him).
In approximately 4 years we intend to sell our main family residence and down size so i can take semi-early retirement.
I expect my FIL's house to be required by him for at least 15 more years, so unlikely to be sold before that time. At that point the residual cash after selling will become our second pension pot equivalent.

Question: 
I have always understood that we would have to pay capital gains on any difference in buying and selling price on my FIL's place - less the CGT allowance for my wife and I of £12,300 x 2 (26k) - I expect to be a basic rate tax payer at the time so i would need to pay 18% CGT:

Example: house bought for £220,000 sold fore £275,000 = diff + £55,000, less Allowance of £26k = £29k taxable at 18% = £5,220
and no tax payable of my main family residence ?

Have I understood the calculations correctly? is there anything I need to do with HMRC now?

Thanks for your help all!
Nick

[Deleted User]

Nick9967 said:

HI all
My wife and I own 2 properties (we both own both) , each has a mortgage .
One is our main family residence (mortgage finishes in 4/5 years)  the other my elderly FIL lives in and we pay the small mortgage on that. (15/16 year mortgage)
We bought the FIL's property 18 months ago (so he could live close and we can take care of him).
In approximately 4 years we intend to sell our main family residence and down size so i can take semi-early retirement.
I expect my FIL's house to be required by him for at least 15 more years, so unlikely to be sold before that time. At that point the residual cash after selling will become our second pension pot equivalent.

Question: 
I have always understood that we would have to pay capital gains on any difference in buying and selling price on my FIL's place - less the CGT allowance for my wife and I of £12,300 x 2 (26k) - I expect to be a basic rate tax payer at the time so i would need to pay 18% CGT:

Example: house bought for £220,000 sold fore £275,000 = diff + £55,000, less Allowance of £26k = £29k taxable at 18% = £5,220
and no tax payable of my main family residence ?

Have I understood the calculations correctly? is there anything I need to do with HMRC now?

Thanks for your help all!
Nick

You don't need to do anything with HMRC now.  Your calculations are broadly correct based on the current CGT rules.  If your share of the capital gain plus your income for the tax year in which you sell your FIL's home takes you over £37,701 (or whatever the threshold for paying the higher rate is in 15+ years) then some of your gain will be taxed at 18% and the rest at 28%.  You will have allowable expenses that could help reduce your CGT bill such as the SDLT paid when you bought the property.  

There is no CGT to pay when selling your only or main home providing it has been your only or main time the whole time you've owned it no matter how big a gain you make.

Nick9967

Great thanks , nice to know my brain isn't so addled!
appreciate your feedback 
thanks

Slinky

Don't forget to keep invoices for any large improvements you make to your FIL's property - new kitchen, bathroom, boiler, that sort of thing, as these would be allowable expenses to reduce the chargeable gain.  The solicitor's fees and stamp duty on the purchase price are also allowable.