Capital Gains Tax on selling previous main home for dad

bennyuk

Hi,
My Dad has had to move out of his family home (just him there) where he's lived for 40 years, into a more suitable flat.

He moved out 2 years ago (Jan 2021), but I'm not sure how long it will take to sell the house (it needed a lot of work on it to get it into a sellable state)

So the house being sold was his main and only home until 2021. Does he have to pay CGT on the years that it wasnt his main home? eg CGT on the rise in valuation between Jan 2021 and March 2023 (or whenever it is sold?)

Have I got this right?

Thanks for any advice, it is much appreicated
Ben

km1500

You dad is able to nominate which property is his main residence for CGT purposes (from Jan 2021)  ie his house or his flat. Thus he could nominate his old house.

https://www.gov.uk/tax-sell-home/nominating-a-home

You also get an overlap relief which is I believe 9 months anyway.

Try the HMRC CGT calculator:

https://www.gov.uk/tax-relief-selling-home

dimbo61

Is he renting the flat ?
How much has the house gone up in value over the last 40 years ?
Could he sell the property as is ? Or does it need a kitchen and bathroom in order for someone to get a mortgage on the property ?

bennyuk

Thanks. He's bought the flat, and has been living in it. I've been repairing and tidying the old house getting it ready for sale (difficult as I'm 3 hours away). 

No mortgages or renting involved.

My thinking is that if the house is worth £300k. He's lived in it for 45-ish years. So if I take the rebase of 1982, say the house was valued at £20k then. If he moved out 2 years ago then I take the appreciated value from 1982  (£280k), during the last 41 years, giving an average appreciation of £6,830 per year.

As he's not lived in the house for 2 years, then it's 2 years (2 * £6,830) = £13,660 which CGT is due on. So with the CGT allowance (£12300 or £6000 from April 2023) then the amount due will be small, maybe 18% on either £1300 (or £7600 after April 2023). So that's either £234 or £1368.

Have I got the basics right or am I missing something?

p00hsticks

bennyuk said:

Thanks. He's bought the flat, and has been living in it. I've been repairing and tidying the old house getting it ready for sale (difficult as I'm 3 hours away). 

No mortgages or renting involved.

My thinking is that if the house is worth £300k. He's lived in it for 45-ish years. So if I take the rebase of 1982, say the house was valued at £20k then. If he moved out 2 years ago then I take the appreciated value from 1982  (£280k), during the last 41 years, giving an average appreciation of £6,830 per year.

As he's not lived in the house for 2 years, then it's 2 years (2 * £6,830) = £13,660 which CGT is due on. So with the CGT allowance (£12300 or £6000 from April 2023) then the amount due will be small, maybe 18% on either £1300 (or £7600 after April 2023). So that's either £234 or £1368.

Have I got the basics right or am I missing something?

You need to do the calculation in months, not years.

You can include 9 months after he moved out.You can also deduct any buying or selling fees and cost of any improvements (e.g. installation of central heating or double glazing, building an extension) from the gain.

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

_Penny_Dreadful

bennyuk said:

Thanks. He's bought the flat, and has been living in it. I've been repairing and tidying the old house getting it ready for sale (difficult as I'm 3 hours away). 

No mortgages or renting involved.

My thinking is that if the house is worth £300k. He's lived in it for 45-ish years. So if I take the rebase of 1982, say the house was valued at £20k then. If he moved out 2 years ago then I take the appreciated value from 1982  (£280k), during the last 41 years, giving an average appreciation of £6,830 per year.

As he's not lived in the house for 2 years, then it's 2 years (2 * £6,830) = £13,660 which CGT is due on. So with the CGT allowance (£12300 or £6000 from April 2023) then the amount due will be small, maybe 18% on either £1300 (or £7600 after April 2023). So that's either £234 or £1368.

Have I got the basics right or am I missing something?

CGT is based on the total gain, not just the gain from when he moved out. 

Gross gain = £300,000 - £20,000 = £280,000

He gets relief for the time it was his primary residence plus the final 9 months of ownership.

Primary residence = (45 x 12) + 9 = 549 months 

Total ownership = 47 x 12 = 564 months 

Therefore PPR = £280,00 x (549/564)
                        = £272,553

Personal allowance = £12,300 

Net gain = Gross gain - PPR - PA
              = £280,000 - £272,553 - £12,300
              = Zero gain

Note that the CGT allowance is reducing to £6,000 on 6th April 2023 so that would leave him with a small gain of £1,467 which would result in CGT bill of a few hundred pounds. The allowance is set to reduce again 6th April 2024 to £3,000. 

Presumably he paid the higher rate of SDLT when purchasing his new flat and he only has 3 years in which to reclaim that and he’s already used up 2. 

How bad is his current home and what needs doing before it goes on the market? 

p00hsticks

_Penny_Dreadful said:

Net gain = Gross gain - PPR - PA
              = £280,000 - £272,553 - £12,300
              = Zero gain

Note that the CGT allowance is reducing to £6,000 on 6th April 2023 so that would leave him with a small gain of £1,467 which would result in CGT bill of a few hundred pounds. The allowance is set to reduce again 6th April 2024 to £3,000.

You can also subtract buying and selling costs from the net gain, which assuming anm estate agent & conveyancer are going to be used for the sale, will almost certainly mean that even after the CGT allowance is reduced to £6000 there would be no CGT due.