Would I be liable for CGT?

akorn77

I bought my house in June 2018 and have lived in it since purchase. It is my only property and I do not intend on buying a 2nd property.

Next year I'm planning to rent out a flat in central london to be closer to work and subsequently rent out my current house. Lets say I do this for 4 years and then sell my house in 2026. Would I be liable for any CGT? 

I've read the Private Residence Relief rules but cant get my head around it at all...

p00hsticks

Firstly, you're not an 'accidental landlord' - you're making  deliberate decision to rent out your house rather than sell it.

As I understand it - your PPR is a matter of fact. You are not going to be living in it as your home for a period and from what you say, where you are going to be living isn't going to be accomodation actually provided by your work, so under the current rules you will be potentially liable for CGT when you come to sell the house in the future - exactly how much you'd have to pay will depend on the gain between 2018 and 2026 and the CGT rules in place then.

GDB2222

Roughly half of your gain would be taxable in those circumstances.

saajan_12

akorn77 said:

I bought my house in June 2018 and have lived in it since purchase. It is my only property and I do not intend on buying a 2nd property.

Next year I'm planning to rent out a flat in central london to be closer to work and subsequently rent out my current house. Lets say I do this for 4 years and then sell my house in 2026. Would I be liable for any CGT? 

I've read the Private Residence Relief rules but cant get my head around it at all...

Possibly. Depends on whether you make any gains beyond the allowances.
Say you move out in June 2022 and sell in June 2026, then you will end up:
* owning property for 96 months
* living in the property as your main residence for 48 months, plus you get the last 9 months as PPR so total 57 months

Then calculate your gain (sale price - purchase price - costs). 
You get PPR for 57/96 = 59% of the gain. 
From the remaining 41% gain, you get an annual allowance of 12.3k currently. 
So taxable gain = 41% x gain - 12.3k 

You then pay tax at 18% / 28% depending on your income tax band. Note this should be calculated for each person that owns the property, for their portion only. 

If you provide the number of owners, purchase price, expected sale price, costs, and annual salaried income then we can help further. 

ETA: Don't say 'accidental landlord', its almost a swear word here. 

Thrugelmir

saajan_12 said:

akorn77 said:

I bought my house in June 2018 and have lived in it since purchase. It is my only property and I do not intend on buying a 2nd property.

Next year I'm planning to rent out a flat in central london to be closer to work and subsequently rent out my current house. Lets say I do this for 4 years and then sell my house in 2026. Would I be liable for any CGT? 

I've read the Private Residence Relief rules but cant get my head around it at all...

You then pay tax at 18% / 28% depending on your income tax band. 

Rumours that CGT is under review and may be brought into line with income tax rates in the forthcoming budget. 

980233

Accidental 

TBG01

Next year I'm planning to rent out a flat

So not accidental then.

akorn77

saajan_12 said:

akorn77 said:

I bought my house in June 2018 and have lived in it since purchase. It is my only property and I do not intend on buying a 2nd property.

Next year I'm planning to rent out a flat in central london to be closer to work and subsequently rent out my current house. Lets say I do this for 4 years and then sell my house in 2026. Would I be liable for any CGT? 

I've read the Private Residence Relief rules but cant get my head around it at all...

Possibly. Depends on whether you make any gains beyond the allowances.
Say you move out in June 2022 and sell in June 2026, then you will end up:
* owning property for 96 months
* living in the property as your main residence for 48 months, plus you get the last 9 months as PPR so total 57 months

Then calculate your gain (sale price - purchase price - costs). 
You get PPR for 57/96 = 59% of the gain. 
From the remaining 41% gain, you get an annual allowance of 12.3k currently. 
So taxable gain = 41% x gain - 12.3k 

You then pay tax at 18% / 28% depending on your income tax band. Note this should be calculated for each person that owns the property, for their portion only. 

If you provide the number of owners, purchase price, expected sale price, costs, and annual salaried income then we can help further. 

ETA: Don't say 'accidental landlord', its almost a swear word here. 

Thank you for your super informative post. Regarding the detailed information: 1 owner (me only), purchased for £390k, sale price £475k, i dont know what you mean by costs, and income changes yearly but id say £90k average. 

I'm trying to figure out if its better to sell my house and buy another property in central london and stump up £30k stamp duty, or rent out my house and rent a flat centrally for a few years. If I'm liable for any CGT, seems like it might be better for me to pay the stamp duty and be done with it. 

Edit - using the calculations you provided, it seems my taxable gain will be circa £20,000! 

p00hsticks

akorn77 said:

Edit - using the calculations you provided, it seems my taxable gain will be circa £20,000! 

There's a proper government calcuator you can use. 

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

But you need to bear in mind that the rules may change between now and when you come to sell in a few years.

london21

They don't see it as accidental. You won't pay on 100% only the pro rata time it was rented out.

poolboy

Not only cgt liability but the rental income is taxed as marginal income, double whammy sadly.  Then the rental regs eicr, energy certs, no wonder landlords are exiting the market.