CGT exemption?

HaydenFox

I lived in my home for 12 years before relocating for daughters education. I rented out the property as really liked the area and didn't want to be priced out if I moved back. My daughter is now an adult and loves where we have lived for the past 4 years. In the next year or so, want to sell up, help her out and then move back to my old house, as I loved the area and still have many connections there. It isn't big but I would still want to downsize at some point. Struggling to understand how I would be effected by CGT, if anyone can explain, I would be very grateful! 

HouseMartin567

I’m struggling to understand. Are you selling the house you rented out? Or selling a different house and moving back into the one that has been rented? If the latter, there won’t be any CGT until the time you actually come to sell it.

Bookworm225

for the % of time (in months not years) you lived there (as  your main home) during your overall ownership time (in months not years) you will get Private Residence Relief (PRR) meaning that % of the gain is subject to zero CGT.

The PRR % always includes the final 9 months of your ownership so if no longer living there that 9 months is added to the actual in residence period. You cannot add 9 if you are actually in occupation during those final 9 months (no double counting !) 

the GROSS gain is selling price minus original purchase price minus legal fees (purchase and sale) minus EA fees (sale)

for the % of time it was not your main home then that is the amount of gain subject to CGT

from that you deduct your CGT allowance (currently £3,000) to leave your NET taxable gain 

you pay tax at 18% on the amount remaining when you deduct your total income subject to income tax from the figure £50,270 (basic rate tax band threshold). If you are already a higher rate taxpayer (ir gross income >50,270) then your entire gain is taxed at 24%

for example suppose your income is 35,270k and you have a gross gain of 43,000 less 3,000 allowance leaving a net taxable gain of 40,000
tax at 18%:  50,270 - 35,270 = 15,000 @ 18%
tax at 24% 40,000 - 15,000 = 25,000 @ 24%
(15 + 25 = 40!)

In your case
original house
is exempt for the time in months ("12 years") you lived there, liable for the 4 years (48 months) you did not live there, and exempt for the reoccupation period.  You appear to eventually want to downsize so will sell the original house, at which point your CGT on that original house becomes payable. Under current rules you must report the tax calculation and pay the tax within 50 days of completing that sale 

daughters education house
for the entire time you have owned it, it has been your main home. Therefore it is 100% exempt from CGT when you sell it, assuming you sell it within 9 months of moving out of it and returning to original house. Take longer than 9 months after leaving it and it too will pick up a small CGT liable period.

NOTE
the gain calculation is based on your ownership share, so if you own with her mother, then each must work out their respective share of the overall gain, eg if owned 50/50. the gross gain of 43k is split into 21,500 each from which each deduct their 3k allowance, meaning each person starts their individual calculation with a net taxable gain of 18,500


for original house crude illustration only
lets say you downsize and sell it 5 years after moving back in. That makes total ownership 12+4+5 = 21 years
You sell for 500k having paid 100k to originally buy it. Lets say buying and selling costs total 5k
Gross gain 500-100-5 = 395,000
PRR period 12+5 = 17 / 21 = 81%
CGT liable % 100-81= 19%
Jointly owned 50/50 with mother, so start point is 395/2 = 197,500 each less 3k allowance = 194,500 net taxable gain for you 
CGT liable amount therefore 194,500 x 19% = 36,955
 
(I will ignore the wife for the rest, the mechanics are the same but obviously using her income. do her 18% figure will be different) 
suppose your gross income is 35,270
you will pay 15.000 @ 18% = 2,700
and will pay (39,955-15,000) 24,500 @ 24% = 5,880

You will sell for 500,000, pay 5,000 in costs and 8,580 in tax leaving you to trouser £486,420

HaydenFox

HouseMartin567 said:

I’m struggling to understand. Are you selling the house you rented out? Or selling a different house and moving back into the one that has been rented? If the latter, there won’t be any CGT until the time you actually come to sell it.

I'm selling the house where I have lived for 4 years, then travelling for a bit and then want to move back into the house I currently rent, that I lived in for 12 years. So if I then sell that (the currently rented one) house, which will then be my only home, I pay CGT when I sell? 

Bookworm225

HaydenFox said:

HouseMartin567 said:

I’m struggling to understand. Are you selling the house you rented out? Or selling a different house and moving back into the one that has been rented? If the latter, there won’t be any CGT until the time you actually come to sell it.

So if I then sell that (the currently rented one) house, which will then be my only home, I pay CGT when I sell? 

@HaydenFox yes, see previous answer

Slinky

With regards the calculations for CGT, if you have made significant improvements to the property, those costs can also be deducted from the taxable profit, so if you've spent £50000 on an extension and £20000 on a new roof £70K of the profit will be ignored. Our 3 bed one bathroom house was 4 bed 3 bathroom house by the time we sold. We'd kept the invoices for the major works, so we didn't have to pay tax on the full difference between buying and selling costs.

Bookworm225

Slinky said:

With regards the calculations for CGT, if you have made significant improvements to the property, those costs can also be deducted from the taxable profit, so if you've spent £50000 on an extension and £20000 on a new roof 

extension yes, classic example of capital expenditure

new roof not so clear cut, it might simply be held to be maintenance, not capital. Just because it is a big £ amount, does not make it an "improvement" (something additional that was not there before).
If there is no extension, then you started with a roof of size X and you ended with a roof of size X. There is no "new" roof in that context, it would be a maintenance cost, not a capital cost

HaydenFox

Bookworm225 said:

for the % of time (in months not years) you lived there (as  your main home) during your overall ownership time (in months not years) you will get Private Residence Relief (PRR) meaning that % of the gain is subject to zero CGT.

The PRR % always includes the final 9 months of your ownership so if no longer living there that 9 months is added to the actual in residence period. You cannot add 9 if you are actually in occupation during those final 9 months (no double counting !) 

the GROSS gain is selling price minus original purchase price minus legal fees (purchase and sale) minus EA fees (sale)

for the % of time it was not your main home then that is the amount of gain subject to CGT

from that you deduct your CGT allowance (currently £3,000) to leave your NET taxable gain 

you pay tax at 18% on the amount remaining when you deduct your total income subject to income tax from the figure £50,270 (basic rate tax band threshold). If you are already a higher rate taxpayer (ir gross income >50,270) then your entire gain is taxed at 24%

for example suppose your income is 35,270k and you have a gross gain of 43,000 less 3,000 allowance leaving a net taxable gain of 40,000
tax at 18%:  50,270 - 35,270 = 15,000 @ 18%
tax at 24% 40,000 - 15,000 = 25,000 @ 24%
(15 + 25 = 40!)

In your case
original house
is exempt for the time in months ("12 years") you lived there, liable for the 4 years (48 months) you did not live there, and exempt for the reoccupation period.  You appear to eventually want to downsize so will sell the original house, at which point your CGT on that original house becomes payable. Under current rules you must report the tax calculation and pay the tax within 50 days of completing that sale 

daughters education house
for the entire time you have owned it, it has been your main home. Therefore it is 100% exempt from CGT when you sell it, assuming you sell it within 9 months of moving out of it and returning to original house. Take longer than 9 months after leaving it and it too will pick up a small CGT liable period.

NOTE
the gain calculation is based on your ownership share, so if you own with her mother, then each must work out their respective share of the overall gain, eg if owned 50/50. the gross gain of 43k is split into 21,500 each from which each deduct their 3k allowance, meaning each person starts their individual calculation with a net taxable gain of 18,500


for original house crude illustration only
lets say you downsize and sell it 5 years after moving back in. That makes total ownership 12+4+5 = 21 years
You sell for 500k having paid 100k to originally buy it. Lets say buying and selling costs total 5k
Gross gain 500-100-5 = 395,000
PRR period 12+5 = 17 / 21 = 81%
CGT liable % 100-81= 19%
Jointly owned 50/50 with mother, so start point is 395/2 = 197,500 each less 3k allowance = 194,500 net taxable gain for you 
CGT liable amount therefore 194,500 x 19% = 36,955
 
(I will ignore the wife for the rest, the mechanics are the same but obviously using her income. do her 18% figure will be different) 
suppose your gross income is 35,270
you will pay 15.000 @ 18% = 2,700
and will pay (39,955-15,000) 24,500 @ 24% = 5,880

You will sell for 500,000, pay 5,000 in costs and 8,580 in tax leaving you to trouser £486,420

Thank you,  I couldn't ask for a better explanation than that.  I did think my current house was 100% excempt as has been  my main home (& I paid more stamp duty at purchase as it was 2nd home) but didn't realise that upon selling I would need to have moved back into my original home within 9 months - that's very helpful to know! Thank you.  

Bookworm225

HaydenFox said:

 (& I paid more stamp duty at purchase as it was 2nd home) but didn't realise that upon selling I would need to have moved back into my original home within 9 months   

since you will not be buying a replacement main home when selling daughter's education house you will be unable to reclaim that additional SDLT

but if you do take longer than 9 months to sell it, if it's any recompense, you will at least be able to offset that higher SDLT cost when working out your gross gain on daughter's education house, so may reduce the respective gain to a trivial sum covered in full by your respective CGT allowance thus effectively extending your time to sell by "a bit"

saajan_12

HaydenFox said:

HouseMartin567 said:

I’m struggling to understand. Are you selling the house you rented out? Or selling a different house and moving back into the one that has been rented? If the latter, there won’t be any CGT until the time you actually come to sell it.

I'm selling the house where I have lived for 4 years, then travelling for a bit and then want to move back into the house I currently rent, that I lived in for 12 years. So if I then sell that (the currently rented one) house, which will then be my only home, I pay CGT when I sell? 

Yes, you'll pay some CGT on the original house, for the % of time you didn't live there. You've always lived in the current property so no CGT there. 

HaydenFox said:

Bookworm225 said:

for the % of time (in months not years) you lived there (as  your main home) during your overall ownership time (in months not years) you will get Private Residence Relief (PRR) meaning that % of the gain is subject to zero CGT.

The PRR % always includes the final 9 months of your ownership so if no longer living there that 9 months is added to the actual in residence period. You cannot add 9 if you are actually in occupation during those final 9 months (no double counting !) 

the GROSS gain is selling price minus original purchase price minus legal fees (purchase and sale) minus EA fees (sale)

for the % of time it was not your main home then that is the amount of gain subject to CGT

from that you deduct your CGT allowance (currently £3,000) to leave your NET taxable gain 

you pay tax at 18% on the amount remaining when you deduct your total income subject to income tax from the figure £50,270 (basic rate tax band threshold). If you are already a higher rate taxpayer (ir gross income >50,270) then your entire gain is taxed at 24%

for example suppose your income is 35,270k and you have a gross gain of 43,000 less 3,000 allowance leaving a net taxable gain of 40,000
tax at 18%:  50,270 - 35,270 = 15,000 @ 18%
tax at 24% 40,000 - 15,000 = 25,000 @ 24%
(15 + 25 = 40!)

In your case
original house
is exempt for the time in months ("12 years") you lived there, liable for the 4 years (48 months) you did not live there, and exempt for the reoccupation period.  You appear to eventually want to downsize so will sell the original house, at which point your CGT on that original house becomes payable. Under current rules you must report the tax calculation and pay the tax within 50 days of completing that sale 

daughters education house
for the entire time you have owned it, it has been your main home. Therefore it is 100% exempt from CGT when you sell it, assuming you sell it within 9 months of moving out of it and returning to original house. Take longer than 9 months after leaving it and it too will pick up a small CGT liable period.

NOTE
the gain calculation is based on your ownership share, so if you own with her mother, then each must work out their respective share of the overall gain, eg if owned 50/50. the gross gain of 43k is split into 21,500 each from which each deduct their 3k allowance, meaning each person starts their individual calculation with a net taxable gain of 18,500


for original house crude illustration only
lets say you downsize and sell it 5 years after moving back in. That makes total ownership 12+4+5 = 21 years
You sell for 500k having paid 100k to originally buy it. Lets say buying and selling costs total 5k
Gross gain 500-100-5 = 395,000
PRR period 12+5 = 17 / 21 = 81%
CGT liable % 100-81= 19%
Jointly owned 50/50 with mother, so start point is 395/2 = 197,500 each less 3k allowance = 194,500 net taxable gain for you 
CGT liable amount therefore 194,500 x 19% = 36,955
 
(I will ignore the wife for the rest, the mechanics are the same but obviously using her income. do her 18% figure will be different) 
suppose your gross income is 35,270
you will pay 15.000 @ 18% = 2,700
and will pay (39,955-15,000) 24,500 @ 24% = 5,880

You will sell for 500,000, pay 5,000 in costs and 8,580 in tax leaving you to trouser £486,420

Thank you,  I couldn't ask for a better explanation than that.  I did think my current house was 100% excempt as has been  my main home (& I paid more stamp duty at purchase as it was 2nd home) but didn't realise that upon selling I would need to have moved back into my original home within 9 months - that's very helpful to know! Thank you.  

No, you've misunderstood. You need to sell the current property within 9 months of when you move out, else you'll start incurring a small amount of CGT on the current property. 

HaydenFox

saajan_12 said:

HaydenFox said:

HouseMartin567 said:

I’m struggling to understand. Are you selling the house you rented out? Or selling a different house and moving back into the one that has been rented? If the latter, there won’t be any CGT until the time you actually come to sell it.

I'm selling the house where I have lived for 4 years, then travelling for a bit and then want to move back into the house I currently rent, that I lived in for 12 years. So if I then sell that (the currently rented one) house, which will then be my only home, I pay CGT when I sell? 

Yes, you'll pay some CGT on the original house, for the % of time you didn't live there. You've always lived in the current property so no CGT there. 

HaydenFox said:

Bookworm225 said:

for the % of time (in months not years) you lived there (as  your main home) during your overall ownership time (in months not years) you will get Private Residence Relief (PRR) meaning that % of the gain is subject to zero CGT.

The PRR % always includes the final 9 months of your ownership so if no longer living there that 9 months is added to the actual in residence period. You cannot add 9 if you are actually in occupation during those final 9 months (no double counting !) 

the GROSS gain is selling price minus original purchase price minus legal fees (purchase and sale) minus EA fees (sale)

for the % of time it was not your main home then that is the amount of gain subject to CGT

from that you deduct your CGT allowance (currently £3,000) to leave your NET taxable gain 

you pay tax at 18% on the amount remaining when you deduct your total income subject to income tax from the figure £50,270 (basic rate tax band threshold). If you are already a higher rate taxpayer (ir gross income >50,270) then your entire gain is taxed at 24%

for example suppose your income is 35,270k and you have a gross gain of 43,000 less 3,000 allowance leaving a net taxable gain of 40,000
tax at 18%:  50,270 - 35,270 = 15,000 @ 18%
tax at 24% 40,000 - 15,000 = 25,000 @ 24%
(15 + 25 = 40!)

In your case
original house
is exempt for the time in months ("12 years") you lived there, liable for the 4 years (48 months) you did not live there, and exempt for the reoccupation period.  You appear to eventually want to downsize so will sell the original house, at which point your CGT on that original house becomes payable. Under current rules you must report the tax calculation and pay the tax within 50 days of completing that sale 

daughters education house
for the entire time you have owned it, it has been your main home. Therefore it is 100% exempt from CGT when you sell it, assuming you sell it within 9 months of moving out of it and returning to original house. Take longer than 9 months after leaving it and it too will pick up a small CGT liable period.

NOTE
the gain calculation is based on your ownership share, so if you own with her mother, then each must work out their respective share of the overall gain, eg if owned 50/50. the gross gain of 43k is split into 21,500 each from which each deduct their 3k allowance, meaning each person starts their individual calculation with a net taxable gain of 18,500


for original house crude illustration only
lets say you downsize and sell it 5 years after moving back in. That makes total ownership 12+4+5 = 21 years
You sell for 500k having paid 100k to originally buy it. Lets say buying and selling costs total 5k
Gross gain 500-100-5 = 395,000
PRR period 12+5 = 17 / 21 = 81%
CGT liable % 100-81= 19%
Jointly owned 50/50 with mother, so start point is 395/2 = 197,500 each less 3k allowance = 194,500 net taxable gain for you 
CGT liable amount therefore 194,500 x 19% = 36,955
 
(I will ignore the wife for the rest, the mechanics are the same but obviously using her income. do her 18% figure will be different) 
suppose your gross income is 35,270
you will pay 15.000 @ 18% = 2,700
and will pay (39,955-15,000) 24,500 @ 24% = 5,880

You will sell for 500,000, pay 5,000 in costs and 8,580 in tax leaving you to trouser £486,420

Thank you,  I couldn't ask for a better explanation than that.  I did think my current house was 100% excempt as has been  my main home (& I paid more stamp duty at purchase as it was 2nd home) but didn't realise that upon selling I would need to have moved back into my original home within 9 months - that's very helpful to know! Thank you.  

No, you've misunderstood. You need to sell the current property within 9 months of when you move out, else you'll start incurring a small amount of CGT on the current property. 

Thank you Sajan. Yes, I see, I did misunderstand that.  I don't plan to move out of current property until it is sold. So, as I now understand it, regardless of of when I move back into original property, there will be no CGT on this property?