Tax due on sale of buy to let house?

kerrick

What is the capital gains tax due in this situation? Bought house for £300k and lived in it 2 years then let it out for 18 years. It would now sell for 650k. At this point capital gains would be due on the £350k gain - adjusted down by the formula that allows for 2 years when it was the main home.

What happens if you return to live in the house as your main home, and renovate it and add a garage and an extension, which increases its value to £750k? If you then sold at any point in future, is the £100k increase in gains resulting from improvements made after it again became was your main residence also subject to capital gains tax?

macman

You can offset the actual cost of improvements, along with the purchase and sale costs. But these must be improvements, not maintenance. 
A garage and extension are clearly improvements.

theartfullodger

CGT must be declared and paid within 60 days under current rules .

Ie get your paperwork and accountant (or DIY plans for CGT ) sorted before going on market.  (Sold 2 in last 3 years)

kerrick

OK "You can offset the actual cost of improvements". So it sounds like capital gains tax is due on the uplift in value due to improvements made while it is your main home and no longer a buy to let.

So once a property stops being a buy to let, and becomes your main residence you are essentially taxed on home improvements and all future uplift in value if you ever sell?

If there is no exemption on uplift from the point it becomes your main residence then over a long period you  miss out on the primary residence CGT tax free that most home owners benefit from, and if house prices increase your tax liability on any future sale gets ever larger?

SonnyLumiere

Given the amounts of relief potentially involved, I would seriously consider consulting an accountant. Next best is looking through legislation and HMRC's interpretation of it in the CGT manual (online). Worst option is to ask about CG tax affairs here.

dimbo61

No your wrong.
They work out the CGT based on the length of time you let out the property.
So when you move back in the clock stops.
Now they work out the CGT amount due by dividing the increase in equity by the number of months you have owned the property minus the time you lived in the property plus 9 months.

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

You only pay CGT when you sell.
So move back in and do the improvements but keep all receipts and enjoy your home for years to come

SonnyLumiere

I agree with dimbo61; following confirms 9mth rule: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64985

macman

No one is denying the 9 month rule, but the point is that the capital gain is calculated as having occurred in equal monthly steps from the date of purchase to the date of sale, excluding those months that you are in occupation, and the last nine months. So a gain that was created whilst in occupation will still be included.
It would be impossible to calculate it any other way, as the gain at the date of improvement would only be theoretical, whereas the gain from sale to purchase is quantifiable.