Selling a 'second' home

tonyohara1962

Hi guys, I'm looking for some advice regarding selling a property and the effects of capital gains tax on this. My wife and I lived in a property ( house A ) from 2000 until 2015 at which point we were able to buy another property ( house B ). We moved into 'house B' and this is now the family home. We are currently renting 'house A' and want to know the implications of capital gains tax if we were to sell 'house A'. I've been told that 'house A' wouldn't be regarded as a 'second home' as it was the original family home and therefore wouldn't be liable to capital gains tax or at least not to the full extent. Can you shed any light on this please?

[Deleted User]

tonyohara1962 said:

Hi guys, I'm looking for some advice regarding selling a property and the effects of capital gains tax on this. My wife and I lived in a property ( house A ) from 2000 until 2015 at which point we were able to buy another property ( house B ). We moved into 'house B' and this is now the family home. We are currently renting 'house A' and want to know the implications of capital gains tax if we were to sell 'house A'. I've been told that 'house A' wouldn't be regarded as a 'second home' as it was the original family home and therefore wouldn't be liable to capital gains tax or at least not to the full extent. Can you shed any light on this please?

Don't know who told you that but it is pants.  You only get Private Resident Relief for the months it was your only or main residence plus the final 9 months of ownership.  If Property A is jointly owned then you and your wife will each have a £12,300 Capital Gains Tax Allowance this tax year to use.

grumiofoundation

You won't have to pay 'full' extent but you are still liable or some capital gains tax. You don't need to pay capital gains tax for the time a property was your main residence, plus the last nine months of ownership (whether you living in or not). 

Remember you also don't have to pay tax on first £12,300 of capital gains (so £24,600 between you). 

https://www.which.co.uk/money/tax/capital-gains-tax/capital-gains-tax-on-property-avuq96u1500f
https://www.gov.uk/tax-sell-property

(Gov link has a calculator - disclaimer though don't know how easy it is to use)

tonyohara1962

Thankyou guys, that is very helpful. I'm a bit confused though on 'You don't need to pay capital gains tax for the time a property was your main residence'. The property was our main residence since 2000. We left it in 2015 so would a value not need to be attached to the property at this point ( which there isn't as it wasn't formally valued ) before a capital gains figure could be worked out for the time since 2015?
i.e. the property was our main residence 2000 - 2015 so no capital gains apply for this period
capital gains are liable for 2015 - present
If we sell for £200,000 how is the capital gains worked out?, i.e. only liable since 2015 and we don't know what the property was worth in 2015.

I hope this makes sense and if not please excuse my ignorance on this matter.

Caz3121

https://www.gov.uk/tax-sell-property/work-out-your-gain

there is a calculator here https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/

Slithery

tonyohara1962 said:
We left it in 2015 so would a value not need to be attached to the property at this point ( which there isn't as it wasn't formally valued ) before a capital gains figure could be worked out for the time since 2015?

i.e. the property was our main residence 2000 - 2015 so no capital gains apply for this period
capital gains are liable for 2015 - present
If we sell for £200,000 how is the capital gains worked out?, i.e. only liable since 2015 and we don't know what the property was worth in 2015.

The property value is assumed to have increased in a linear fashion, the CGT you are liable for is based on the time owned minus the allowable relief.
In your example you've owned the property for 259 months if you sell now, the time you lived there plus the last 9 months are exempt so you will be liable to pay tax on 70 / 259 * 100 = 27% of the increase in the property value. Take away your personal allowance for the year (£12,300 each) and tax on the remainder is due at whatever your income tax rate is.

p00hsticks

tonyohara1962 said:

Thankyou guys, that is very helpful. I'm a bit confused though on 'You don't need to pay capital gains tax for the time a property was your main residence'. The property was our main residence since 2000. We left it in 2015 so would a value not need to be attached to the property at this point ( which there isn't as it wasn't formally valued ) before a capital gains figure could be worked out for the time since 2015?
i.e. the property was our main residence 2000 - 2015 so no capital gains apply for this period
capital gains are liable for 2015 - present
If we sell for £200,000 how is the capital gains worked out?, i.e. only liable since 2015 and we don't know what the property was worth in 2015.

I hope this makes sense and if not please excuse my ignorance on this matter.

No you don't need a midway valuation - look at the calculator linked to above.

Basically you take the price you initially paid (plus any allowable expenses such as buying and selling costs) from the price at which you sell - that is your overall capital gain.

You then work out how long (in months) you have owned the property and for how long (in months, plus and extra 9) you were living in it. These figures give the proportion of the overall gain that is liable to CGT.

You and you wife each have an annual CGT allowance of £12.300 that you can use against any CGT liability.

Keswick1uk

No you don't need a 2015 value.

You work out the whole gain over ownership. Sale price less costs of sale, purchase cost, purchase costs like legals and improvements when you owned it.

Then work out how long you were living in it a principal private residence. Add final 9 months (that's a gift from HMRC) .

Then work out how much gain is PPR and how much during letting period.

Each owner has a part of this so if two of you own it then your gain is half, and same for your wife.

You get 12300 tax free each tax year for asset gains so you may well not have to pay anything,  depends entirely on how much its gone up. If its  a house in London, you may have a lot to pay.


If your personal gain exceeds the allowance its added to your income this year and then you pay 18 percent whilst you are basic rate taxpayers and 28 percent on anything above.

It means you are likely to each pay different amount of tax.

And, if there is tax to pay, you have to complete a 30 day CGT residential property return and pay the tax in 30 days using an estimate of your income this year.

And also do an  annual 21/22 self assessment return next year with it on to check the tax is right based on actual income. You also need to do a self assessment return even if there is no liability. (Unless its a very cheap house)