CGT when selling Question

Rogerrabbit777

looking for some advice or opinions please. Family members rented out their only property (home) that they have owned for over thirty years and moved abroad where they used the rental income to rent overseas. Ten years later (now) they returned to the UK to live again in their former home. All registered at the address for bills,HMRC etc etc. They now want to sell the house to downsize or maybe return abroad again next year.

From my “research” there is No UK CGT to pay as they are living in the home as their one and only residence. And the time they have lived in it after returning from abroad is irrelevant.As its whether it is their provable main residence as shown in a precedent legal case from 2017.  Am I on the right path with this? Thanks 

silvercar

Once you rent out your property even if it is the only one you own, you can't claim it was your PPR for the whole time of ownership. So you are entering CGT territory.

Presuming that they declared being an overseas landlord and paid tax on the rental income on that basis, they will be on hmrc radar for this. Time for a calculation, having lived in the property for many years, there may not be a big bill. 

Keep_pedalling

It’s more complicated than that, the house cannot be classed as their residence while renting it out so CGT does apply but they can claim private residence relief for the two periods they have been living there.

https://www.gov.uk/tax-sell-home#:~:text=You%20do%20not%20pay%20Capital,not%20include%20having%20a%20lodger

Rogerrabbit777

Thanks. Yes they declared rental income as non resident landlords. They have owned the house for just over 33 years. It was rented out for just over 9 years.  All the other time it was lived in as their  only home. Could you advise on how to work out any potential tax or/and is there a time they could live in the property to avoid it all together? 

Slinky

You can't avoid it all together, but you can reduce the liabillity to CGT by using all the available deductions. Have they made major improvements to the property? New kitchen, bathroom, windows, extension etc? Maintenance costs don't count. All those proveable expenses can be used to reduce the liability to CGT. We rented out our house for 3 years but the CGT was below our allowances despite a huge increase in value over 25 years ownership after we offset the improvements we'd made.  My accountant did all the maths for us.

Caz3121

they will qualify for rrivate residence relief for the period they were living in the property
Can do a calculation here - https://www.gov.uk/tax-sell-property/work-out-your-gain
not aware of any way they can avoid it...the longer they live in the property the higher the % of relief but they cannot change that they rented the property for 9+ years so CGT will be due on part of the gain

p00hsticks

Rogerrabbit777 said:

Could you advise on how to work out any potential tax or/and is there a time they could live in the property to avoid it all together? 

Answer to the second question is No, there isn't.
There is a CGT calculator on the gov.uk website here
Tax when you sell your home: Private Residence Relief - GOV.UK (www.gov.uk)

I'm not an expert so I might not have the details totally correct but I think that roughly the calculation goes something like;

A: Capital gain = selling price - price to buy - cost of buying - cost of selling - price of any major improvements
(There are guidelines as to what can be classed as improvements and what is just maintenance). 

You then work out the proportion of time in months that the property was NOT their main residence, plus an allowance of a further nine months. 
B: (Total months owned - total months for which it was your main residence - 9)  / Total months owned  

The CGT liability is then A x  B; each individual owner has an annual CGT allowance which they can use to set against this if not used already. (This tax year it is £6k, reducing to £3k next year).   

Note that any CGT due needs t obe paid within 60 days of the completion of the house sale 

Rogerrabbit777

Slinky said:

You can't avoid it all together, but you can reduce the liabillity to CGT by using all the available deductions. Have they made major improvements to the property? New kitchen, bathroom, windows, extension etc? Maintenance costs don't count. All those proveable expenses can be used to reduce the liability to CGT. We rented out our house for 3 years but the CGT was below our allowances despite a huge increase in value over 25 years ownership after we offset the improvements we'd made.  My accountant did all the maths for us.

Thanks. they had kitchen /bathrooms done when living in it but it was in the 90,s. And they will have no proof of costs now. Was your bill alot and what are the allowances as im trying to see whether this is going to cost 100’s or more which they will struggle with

Rogerrabbit777

p00hsticks said:

Rogerrabbit777 said:

Could you advise on how to work out any potential tax or/and is there a time they could live in the property to avoid it all together? 

Answer to the second question is No, there isn't.
There is a CGT calculator on the gov.uk website here
Tax when you sell your home: Private Residence Relief - GOV.UK (www.gov.uk)

I'm not an expert so I might not have the details totally correct but I think that roughly the calculation goes something like;

A: Capital gain = selling price - price to buy - cost of buying - cost of selling - price of any major improvements
(There are guidelines as to what can be classed as improvements and what is just maintenance). 

You then work out the proportion of time in months that the property was NOT their main residence, plus an allowance of a further nine months. 
B: (Total months owned - total months for which it was your main residence - 9)  / Total months owned  

The CGT liability is then A x  B; each individual owner has an annual CGT allowance which they can use to set against this if not used already. (This tax year it is £6k, reducing to £3k next year).   

Note that any CGT due needs t obe paid within 60 days of the completion of the house sale 

Thank you. Although i find this totally confusing interms of trying to work it out. ive looked on the hmrc link and one of the questions is how much relief are you entitled to? How am i supposed to answer that as im trying to find out  what if any CGT would be due. Would anyone be able to help me interms of working out whether its above their allowance of it would maybe be a few hundred or alot more and something to worry about?

p00hsticks

I'm pretty sure that just updating an existing  kitchen and bathroom thirty years ago won't count.

They'll know the costs of selling the property when they've sold it - buying costs from thirty years ago are unlikely to make a significant impact on the overall calculations so it's probably not worth trying too hard to establish them . 

As per my previous posts, CGT allowance this year is £6k - it drops to £3k in April 2024. If the property is jointly owned each owner can use their individual allowance against their share of the gain. 

p00hsticks

Rogerrabbit777 said:

p00hsticks said:

Rogerrabbit777 said:

Could you advise on how to work out any potential tax or/and is there a time they could live in the property to avoid it all together? 

Answer to the second question is No, there isn't.
There is a CGT calculator on the gov.uk website here
Tax when you sell your home: Private Residence Relief - GOV.UK (www.gov.uk)

I'm not an expert so I might not have the details totally correct but I think that roughly the calculation goes something like;

A: Capital gain = selling price - price to buy - cost of buying - cost of selling - price of any major improvements
(There are guidelines as to what can be classed as improvements and what is just maintenance). 

You then work out the proportion of time in months that the property was NOT their main residence, plus an allowance of a further nine months. 
B: (Total months owned - total months for which it was your main residence - 9)  / Total months owned  

The CGT liability is then A x  B; each individual owner has an annual CGT allowance which they can use to set against this if not used already. (This tax year it is £6k, reducing to £3k next year).   

Note that any CGT due needs t obe paid within 60 days of the completion of the house sale 

Thank you. Although i find this totally confusing interms of trying to work it out. ive looked on the hmrc link and one of the questions is how much relief are you entitled to? How am i supposed to answer that as im trying to find out  what if any CGT would be due. Would anyone be able to help me interms of working out whether its above their allowance of it would maybe be a few hundred or alot more and something to worry about?

If you can tell us

• what they paid for the house
• what they think it will sell for now
• when (month and year) they bought it
• when (month and year) they  moved out,
• when (month and year) they moved back in
• and when (month and year) they hope to sell it

people will be able to give a rough idea)