Capital Gains Tax on rental property, if I do not also own a home.

Skutter47

Hi everybody, I have a question about Capital Gains Tax, here is the scenario:

I own a flat, I lived in it for 10 years, but then I outgrew it. So I moved out, rented the flat out 2 years ago, and then rented a property with my partner to live in. I now live in a rental property, at the same time as owning a rental property. The flat I own is small, one bedroom, no land or garden, no more than about 1500 sq ft.

I now wish to sell the flat, and use all the money to buy a home for us to live in, but I am concerned I may have to pay capital gains tax on the rental property, despite not also owning a home. The guidance on the GOV website doesn't mention this specific set of circumstances.

EDIT: I should probably mention that the home is not currently on a buy-to-let mortgage, I have permission to let on my residential mortgage, which expires in June.

Can anybody advise me as to the tax requirements in this situation?

kingstreet

You are likely to be liable for CGT on the sale price minus the value at the point you started letting. You have a nil rate band before the tax becomes payable so £12,300 of all your gains in that tax year will be tax free.

The type of mortgage is irrelevant.

Mahsroh

You will be liable for CGT (I had EXACTLY the same situation until fairly recently) but you will get relief for the period you lived in it, plus the last nine months of ownership irrespective of whether it was let during that period).

I've literally just put a worked example on another thread. I'll copy and paste on here, though the timescales differ massively to yours. 

EDIT: I'm willing to bet if it's a 1 bedroom flat that you've owned for 12 years and lived in it for 10, by the time you've applied the relief you'll be below the £12,300 tax free allowance.... (assuming the flat isn't in Mayfair!).... only you'll know the figures though. 

Mahsroh

Example I just posted on another thread.... 

SAY:
Purchase price £100,000
Sale Price £310,000
Gain = £210,000

Buying/selling costs say £10,000 
Total "profit" = £200,000

Lets say you lived in it for 28 year 0 months 
Rented it out for a subsequent 5 years 0 months 

You would have owned the property for 396 of which you would be able to claim relief for 345 months (28yrsx12 months + final 9 months of ownership) 

Therefore from your £200,000 profit £174,240 would be subject to relief leaving you with £25,760.00 which would be subject to tax. You then have a £12,300 tax free allowance (assuming you have no other CGT to declare in that year) so £13,460 would be taxable which will either be at 18% (£2,422.80) or 28% (£3,768.80) depending on whether you are a higher rate tax payer or not. 

More detail at the link below including various working examples. 

https://www.gov.uk/tax-sell-property

p00hsticks

Just for the record. For CGT purposes, It's of no significance whether or not you own or rent the house you are currently living in, how big or small that house is, or that the house is (or is not) the only one you own. That's why you can;t find it covered in the circumstances.

The only thing that matters is whether the house you are selling is (or every has been) your main residence or not.

Mahsroh

p00hsticks said:

Just for the record. For CGT purposes, It's of no significance whether or not you own or rent the house you are currently living in, how big or small that house is, or that the house is (or is not) the only one you own. That's why you can;t find it covered in the circumstances.

The only thing that matters is whether the house you are selling is (or every has been) your main residence or not.

You'd be amazed how many people think this! When I was in the process of selling mine, if you'd given me a pound for every time a friend or relative would question why I was paying CGT when "it's the only property I own" i'd have probably covered the cost of my CGT bill!! 

Flyingbanana46

Great thread people. I am downsizing from my current 4 bedroom house back into my 1 bedroom house as everyone has now left the big family home but i do have plans to move in the next 3 years. I did hear from a couple of people that said if you live back in your rental property as your only home for a period of 2 years then there will be no CGT. One persion even said as little as 9 months. Rather than listen to friends i thought i would ask the experts

dimbo61

Hi Flyingbanana46,
If you want to post your own question rather than add a comment to an old post from January you might get a reply.
Do you own 2 properties ?

woahsoah

I've just gone through this process. The mortgage type is irrelevant. You'll get some private residence relief and how much CGT is dependent on your gain. My CGT bill was small but this was due to allowances around NRCGT.

woahsoah

Flyingbanana46 said:

Great thread people. I am downsizing from my current 4 bedroom house back into my 1 bedroom house as everyone has now left the big family home but i do have plans to move in the next 3 years. I did hear from a couple of people that said if you live back in your rental property as your only home for a period of 2 years then there will be no CGT. One persion even said as little as 9 months. Rather than listen to friends i thought i would ask the experts

Look up private residence relief. PRR is based on the proportion of the time you lived in the property. You'll get this plus 9 months. This is my understanding at least. Not an accountant. I don't think there are ways to skirt around moving out and moving back then claiming it as your primary residence and so no CGT. If you do, you'll still have not lived in it for X amount of time which ultimately causes a CGT charge.

saajan_12

Flyingbanana46 said:

Great thread people. I am downsizing from my current 4 bedroom house back into my 1 bedroom house as everyone has now left the big family home but i do have plans to move in the next 3 years. I did hear from a couple of people that said if you live back in your rental property as your only home for a period of 2 years then there will be no CGT. One persion even said as little as 9 months. Rather than listen to friends i thought i would ask the experts

There's no magic fix to CGT by moving in later. There are reliefs based on the amount of time (if any) you live there and also a £12k allowance. So in certain cases, shifting the balance period of occupation might drop the CGT below the allowance and result in £0 tax IN THAT CASE but that can't be generalised. 

In your case, how many months have you owned and lived in each property? What is the capital gain and were there any capital improvments made?