Getting Around Capital Gains Tax

WalkerT_2

Hi,

So our situation is that my partner and myself have decided to live together, her property sold last year and now she is living with me, the house is solely in my name and so is the mortgage. The mortgage can be paid off at any point. 

We Have seen a new property (2) we really want to buy and we are prepared to get a new mortgage to buy that property. We will then let my current property (1) sell as and when it does. We would then use the money to pay off the mortgage on property 2..
I’m aware that if we buy property number 2 before property number 1 sells I could be liable for Capital Gains Tax and once we declare property 2 as our main residence i have 9 months to sell property 1 before it’s subject to CTG.

Now I have no idea how much CGT I might have to pay but one option is to take the risk and hope it sells within 9 months but I’m very fearful of this as my partners property took 18 months to sell and I’ve already had a buyer pullout of buying my property. 

Another option if it’s possible that is? Do I let my partner (we are not married) buy property 2 in her name only and then when property 1 sells she adds me to the title deeds and mortgage?

If there are any other potential ways to legally get around CTG I’d be very interested to hear these.

Thanks

bobster2

First don't forget SDLT (stamp duty). You will need to pay the additional SDLT charge when you buy a second property. However, this can be refunded if you replace (sell) your former main residence within 3 years.

Yes - there could be some CGT due on selling property 1 when you eventually sell it - if you don't sell it within 9 months. But CGT would only be due for the period when it was not your main residence.

Say property 1 is your main residence for 5 years. And it takes 2 years to sell. There will have been a gain over a period of 84 months. But you will get primary residence relief for 60 + 9 months. So the taxable gain would only be 15/84ths (about 18%) of the total gain. Plus you have an annual CGT allowance. So I would not worry about this.

WalkerT_2

Hi bobster2, thank you for the speedy reply.

so I actually thought I’d have to pay 18% on the total gain but from you say this is not the case and only applies to duration the property is empty minus 9 months, is this correct.

About the tax rate on CTG, I earn just under the 50k higher rate tax threshold, when CTG is calculated does it include earnings? If it doesn’t I assume I’ll pay the lower CTG rate?

Here are my figures regarding the house so if you don’t mind please could you give me a rough idea on potential CTG?

Property was bought in November 2015 for £108500 and is for sale at £200000 so that’s a possible gain of £91500.

Thanks.

silvercar

Also no higher SDLT if you buy in partners name alone.

silvercar

Property was bought in November 2015 for £108500 and is for sale at £200000 so that’s a possible gain of £91500.

Gain, less buying and selling costs and less £3k CGT allowance, so actual gain for CGT let’s say is 85k. Also assume you move out in April.

If you sold it in November 2025 - You’ve lived in it as PPR plus the final 9 months of ownership. So are exempt for the whole time.

If you sold in November 2026 - exempt for the time you lived in it (113 months) + final 9 months = 122 months out of the total of 132 months. So you would pay CGT on 10/ 132 x 85k =6,440. This is charged at 18% or 24% depending on your marginal rate of income tax..so worst case is £1,803.

Keep_pedalling

Renting it out does not make sense if you plan to dispose of it relatively quickly, youmay end up with a tenant who won’t leave.

bobster2

silvercar said:

Also no higher SDLT if you buy in partners name alone.

Concealing beneficial ownership to avoid SDLT can constitute tax evasion.

Bookworm105

WalkerT_2 said:

so I actually thought I’d have to pay 18% on the total gain but from you say this is not the case and only applies to duration the property is empty minus 9 months, is this correct.

a simple google would have found out those facts
Tax when you sell your home: Private Residence Relief - GOV.UK

About the tax rate on CTG, I earn just under the 50k higher rate tax threshold, when CTG is calculated does it include earnings? If it doesn’t I assume I’ll pay the lower CTG rate?

Here are my figures regarding the house so if you don’t mind please could you give me a rough idea on potential CTG?

Property was bought in November 2015 for £108500 and is for sale at £200000 so that’s a possible gain of £91500.

gross income subject to income tax plus personal allowance  = ?
if ? is less than 50,270 then the difference between that and 50,270 is the amount of capital gain taxed at 18% and any residual (ie gain in excess of 50,270) is taxed at 24%

as you have not given a moth in which you moved out no one can give you an answer using your figures 

WalkerT_2

silvercar said:

Property was bought in November 2015 for £108500 and is for sale at £200000 so that’s a possible gain of £91500.

Gain, less buying and selling costs and less £3k CGT allowance, so actual gain for CGT let’s say is 85k. Also assume you move out in April.

If you sold it in November 2025 - You’ve lived in it as PPR plus the final 9 months of ownership. So are exempt for the whole time.

If you sold in November 2026 - exempt for the time you lived in it (113 months) + final 9 months = 122 months out of the total of 132 months. So you would pay CGT on 10/ 132 x 85k =6,440. This is charged at 18% or 24% depending on your marginal rate of income tax..so worst case is £1,803.

Thank you silver car. 

How did you get the £1803 figure please? Reason I ask is that 24% of 6440 is £1546 or am I probably working it wrong? Either way I thought I’d be paying 24% on £85k so thanks for the information, it much appreciated. 

FreeBear

Keep_pedalling said:

Renting it out does not make sense if you plan to dispose of it relatively quickly, you may end up with a tenant who won’t leave.

On top of that, any rental income would be taxable. And before you even think about renting, you need to look at all the rules & regulations you'll need to comply with.

silvercar

WalkerT_2 said:

silvercar said:

Property was bought in November 2015 for £108500 and is for sale at £200000 so that’s a possible gain of £91500.

Gain, less buying and selling costs and less £3k CGT allowance, so actual gain for CGT let’s say is 85k. Also assume you move out in April.

If you sold it in November 2025 - You’ve lived in it as PPR plus the final 9 months of ownership. So are exempt for the whole time.

If you sold in November 2026 - exempt for the time you lived in it (113 months) + final 9 months = 122 months out of the total of 132 months. So you would pay CGT on 10/ 132 x 85k =6,440. This is charged at 18% or 24% depending on your marginal rate of income tax..so worst case is £1,803.

Thank you silver car. 

How did you get the £1803 figure please? Reason I ask is that 24% of 6440 is £1546 or am I probably working it wrong? Either way I thought I’d be paying 24% on £85k so thanks for the information, it much appreciated. 

You’re right.i calculated 28% by mistake.