Capital gains

mills1983

Hello, after some advice please! My partner moved into my house in 2020 due to the  COVID situation, and then rented her house (mortgaged) to some friends. This house is due to be sold this September, and I'm assuming it's been her second home since she moved in with me? So am I right in thinking capital gains would only be payable on the increase in value from the time she moved out (2020) to now? And if the value of the house hasn't changed, there would be no CGT payable? 

Thanks,
Alun

Bookworm105

You are not quite correct, it not based on value since she moved out, it is based on % of time it was not her home.
Ok she is no longer living in the property as her main home. One assumes "partner" does not mean legally married to you (if you are, and marriage happened before Sept 20, that matters a lot)

CGT calculation must be done in months 
because it once was her main home she gets the final 9 months of the ownership period as "exempt" Private Residence Relief (PRR)

There are 5 steps to the calculation:

Gross gain:  selling price minus original purchase cost minus associated buying and selling costs (eg legal & agent fees) = Gross gain £A 
PRR Exemption percentage:  (period physically lived in as main home in months) + (if moved out, final 9 months of ownership) / total ownership period in months = B%
Liable period percentage: 100% - B% = C%
GCT taxable gain : gross Gain £A x C% = D net gain £
Net gain minus CGT allowance (£3,000) = net taxable gain £

So in her case, it comes down to how much is the £ gross gain to start with, and how long had she owned it before Sept 2020. She may, or may not, have a taxable gain covered in full by the £3 allowance.

p00hsticks

mills1983 said:

Hello, after some advice please! My partner moved into my house in 2020 due to the  COVID situation, and then rented her house (mortgaged) to some friends. This house is due to be sold this September, and I'm assuming it's been her second home since she moved in with me? So am I right in thinking capital gains would only be payable on the increase in value from the time she moved out (2020) to now? And if the value of the house hasn't changed, there would be no CGT payable? 

Thanks,
Alun

No, that's not how it works. You use the gain across the whole period that the property was owned (in months) but as it's been her primary residence for at least some of that  time the potential CGT liability is only due on the proportion of time that it wasn't her PPR.

You can also allow for buying costs, selling costs, and the cost of any allowable improvements. 
There's a calculator that steps you through it here
Tax when you sell property: Work out your gain - GOV.UK (www.gov.uk)

theartfullodger

NB CGT must be declared and paid within 60 days of sale.  Get prepared!

mills1983

Thanks for the replies!

I'm trying to work it out, but it's so confusing!

I'm looking at the online calculator, and trying to work out the Private Residence Relief...

She has owned it since 10/08/2015
Moved out Feb 2020
So out of the 108 months she has owned it, she has lived there for 52 months, plus the 9 months at the end of ownership = 59, =63% of the time she has lived there?

So does that mean 63% of the gain is tax deductable? (Gain = 233,000 - 136,00 - 30,000 = £67,000) 63% of £67k = £42210 << Is that the amount that goes in the Private Residence Relief section of the calculator?

Sorry I should have clarified that we are married, as of 27/06/2023

Original purchase price £136,000

Moved out Feb 2020

Selling price £233,000 (01/09/2024)

Cost of renovations  & legal fees etc- £30,000

silvercar

Your calculations look ok. Do the renovations cover capital improvement items rather than repairs and maintenance?

your date of marriage doesn’t effect your calculations as you can only have one PPR between you, but you were already living together at that point.

Bookworm105

mills1983 said:

Thanks for the replies!

I'm trying to work it out, but it's so confusing!

I'm looking at the online calculator, and trying to work out the Private Residence Relief...

She has owned it since 10/08/2015
Moved out Feb 2020
So out of the 108 months she has owned it, she has lived there for 52 months, plus the 9 months at the end of ownership = 59, =63% of the time she has lived there?

So does that mean 63% of the gain is tax deductable? (Gain = 233,000 - 136,00 - 30,000 = £67,000) 63% of £67k = £42210 << Is that the amount that goes in the Private Residence Relief section of the calculator?

Sorry I should have clarified that we are married, as of 27/06/2023

Original purchase price £136,000

Moved out Feb 2020

Selling price £233,000 (01/09/2024)

Cost of renovations  & legal fees etc- £30,000

wrong 59/108 = 54.6% not 63% and your 59 count is wrong anyway 

please be very careful over "cost of renovations" - are you 100% certain you know the difference between a capital improvement and a revenue repair because if £30k includes legal & EA fees then what capital work actually took place?

subject to the above, and assuming you have no other gains that tax year (ie full 3k)
Aug 15 to Aug 24 = 108 mths
but Aug 15 to Feb 20 = 54 months not 52, so +9 =  63 months PRR
63/108 = 58.3% 
PRR 67,000 x 58.3% = 39,083
net CGT gain: 67,000 - 39,083 - 3,000 (allowance) = 24,917 taxable gain 

tax payable, worst case scenario (ie all at 24%) £5,980
tax payable, best case scenario (ie all at 18%) £4,485
How much she pays at 24% depends on how much of her basic rate tax band £37,700 is left after deducting her pre tax gross pay/interest received/dividends received and adding back her 12,570 income tax allowance.

silvercar

She has owned it since 10/08/2015
Moved out Feb 2020
So out of the 108 months she has owned it, she has lived there for 52 months, plus the 9 months at the end of ownership = 59, =63% of the time she has lived there?

Owned for 9 x 12 months = 108

lived in it for 4 x 12 + 6 months = 54

54+9= 63.

63 / 108= 58.333%

silvercar

I’m wondering if being married saves you money. If she transferred the property to joint ownership before sale, I think that you would acquire her date of purchase and PPR. You would therefore also have your CGT allowance to use. But you need to check your personal tax status, as a higher earner could end up paying more than the CGT allowance would give you.

mills1983

Thanks again - the renovations are an extension and new windows and new front door that were put in - that's fine isn't it?

Just thinking about it, whilst she moved in with me in Feb 2020 due to COVID she was still back and forth, and didn't come on the mortgage until 01/04/2021, so that would be a more accurate start date for the other home becoming her  'second home'. 

Thanks 

silvercar

mills1983 said:

Thanks again - the renovations are an extension and new windows and new front door that were put in - that's fine isn't it?

Just thinking about it, whilst she moved in with me in Feb 2020 due to COVID she was still back and forth, and didn't come on the mortgage until 01/04/2021, so that would be a more accurate start date for the other home becoming her  'second home'. 

Thanks 

An extension would be capital. New windows and front door were replacing old ones, so would probably count as repair and maintenance. There are even rules that state thar replacing single glazing with double still only counts as repair or maintenance.

As for the date of moving in with you, as soon as she started renting it, it can't be her PPR. The exact date is determined by fact - so when did she notify her work, doctors and other key admin tasks that she had moved?