Capital Gains Tax

Anthear

I can see that the allowances are changing from this coming tax year to £6k and the year after to £3k pa.

If you own property that you let and you dispose of it, is all of the gain taxed as if the gain falls in the year you dispose of it in?  ie. if you owned a property for 5 years and made a gain of say £50k when you sell, would you be taxed £50k - 6k (assuming sold next tax year) so the CGT liability would be taxed:  £44k x 18% = £7,920 charge?

[Deleted User]

The gain will be taxed in the tax year when contracts are exchanged (when the sale becomes unconditional). 

In the example that you state - £44000 would be taxable in one tax year. The rate depends on your other income. If, for example, you had other taxable earnings of £30000 in 2023/24, the first 20270 of the gain would be taxed at 18% with the remainder at 28%.

Jeremy535897

Assuming you never occupied the property as your main residence.

Anthear

Jeremy535897 said:

Assuming you never occupied the property as your main residence.

And if we have - which we will have, what's the situation then?

[Deleted User]

Anthear said:

Jeremy535897 said:

Assuming you never occupied the property as your main residence.

And if we have - which we will have, what's the situation then?

You will receive relief for the period that it was your private residence plus, usually, for the final nine months.  I also note the you now say ‘we’? Is the gain, therefore, £25000 each before reliefs?

How long have you each owned it? 

How long have you each lived in it as your main residence?

Anthear

Thanks very much for your comments - really useful.  It's all just hypothetical.  The property I have bought used to be rented out for many years.  I am thinking of renting it out again to give my sons some income on an inheritance they have.  Atm the money is in savings and not earning a great deal.  Rental potential is probably £1,500 a month that we would split according to the % each of us owns. I own all of it at present. 

There are lots of considerations - not least if we did do this, my children would no longer be first time buyers, but then again there's no Stamp Duty up to £250k and they'd have to be earning well to afford a mortgage of £150k.

I would probably do this after owning for around a year.  Neither child uses their personal allowance, so the rental income would not be liable to tax.  

Am I right in thinking I could sell them a portion of the property we currently live in at market rate - not sure if there are any rules around this??

Keep_pedalling

Would your children be first time buyers? If either of them are then this would be a big mistake as they would lose that status which is going to cost them big time when they come to buy their own place.

If they are already home owners then they would have to pay an addition 3% stamp duty on any share they purchased from you as well as you having a potential CGT liability.

Keep_pedalling

Are your children adults? 

Anthear

The children would be first time buyers. We don't have a crystal ball to tell us what plans this Gov - or the next, are going to do for first time buyers. It's a big unknown. 

The first £250k is stamp duty free anyway and in order to borrow, they'd have to be earning around £50k pa in order to afford to mortgage any prospective property.  Savings rates, although they have improved, don't match the returns that they could potentially get by using their capital to buy property.

Jeremy535897

It doesn't sound as if you have used the property as a main residence? Others have pointed out the first time buyer issue. If you sell or give part of the property away to a connected person, you have to treat that gift or sale as being at market value, and the capital gain is calculated on that basis. As for stamp duty, the buyer pays it and it is based on the price actually paid (although that does include the value of any debt taken over by the buyer.

I am feeling rather nervous about the private rental market. There are many things coming down the track, some of which also affect owner occupiers. Already we have the limitation of tax relief on mortgage interest on a rented property to jut a basic rate tax credit, and it does not reduce adjusted net income. Capital gains tax is getting more penal. But in the relatively near future there is a risk that you will not be allowed to let a property with an energy rating below C, or potentially mortgage it or even sell it. If the property is unfortunate enough to be fuelled by oil, a ban on oil boilers is potentially going to arrive by 2026 (even for existing properties: if your oil boiler breaks you won't be able to replace it). Both Labour and Conservative politicians are minded to strengthen the security of tenure for tenants, so it will be harder to evict them.

Anthear

The property is currently used as a main residence.

I can't see a ban on oil boilers by 2026.  That's only 3 years away.  I've have an oil boiler for the past 17 years - there has to be a suitable replacement option and at the present time, there isn't.  Long term there has to be change, but I can't see it happening in 3 years.

I think it probably depends on where in the UK you are thinking of renting out.  Huge variation across the country.  If the Gov want to bring in more stringent measures about the rentability or saleability of housing stock - which in the bigger picture is not in itself a 'bad thing' they will have to give homeowners and landlords help with the cost of these, particularly with the energy situation being what it is.

Completely understand the market value concept - wouldn't suggest it working any other way.  There is no Stamp Duty to pay on a purchase of up to £250k is my understanding - or have I misunderstood?