Making sense of CGT

Sooz1966

Hi, trying to figure out our potential liability and going round in circles so would appreciate some help.

We're in the fortunate position of being able to buy our next house with an inheritance and thus considering buying before selling our current property. Only considering, as we may decide to just sit tight and wait if it's too expensive/risky!

I understand the implications for stamp duty and not too concerned as would in all likelihood be able to sell within 3 years so would get a rebate.

In terms of CGT, I understand this is based on gains...is this from the date of moving into the 2nd home or from the date, over 20 years ago, that we bought the first? If the former, once we've taken our allowances into account and deducted the selling costs, it seems very unlikely there'll be any gains (logically, we're surely more likely to reduce the asking price if it won't sell rather than increase it?). If the latter, then surely people who've lived in their property for many years, like us, are disproportionately 'punished'. I can't figure out why gains made many years ago are now relevant and whether there's any allowance made for costs of improvements made 20 years ago being so much lower than they would be if we'd done the work last year!

I also understand there's a 9 month 'grace period' - is this 9 months from moving out of the first house and into the second? And is the CGT then tapered depending on the time lapsed from 9 months onwards? Also I think that both of us would have to apply so presumably we halve the selling costs, money spent on improvements over the years, and gains made, on each of our submissions?

I thought it would help to have a look at the form on gov.uk to see what's what, but there doesn't seem to be a paper version and I don't want to create an account for CGT if I might not need it.

p00hsticks

Broadly speaking, the gain used is the increase over the whole time you have owned the property, but only multiplied by the proportion of time it wasn't your primary residence ( see notes on Primary Residence Relief)

Private Residence Relief (Self Assessment helpsheet HS283) - GOV.UK

So - in very rough brushstrokes - if it went up £20,000 in twenty years but you lived in it for 19 of those year, then the gain is 1/20th of £20,000 = £1,000. Whereas someone who lived in a property for 4 out of the five years they owned it during which it went up £5000 would also havea gain of 1/5th of £5,000 = £1,000

So people who have lived in a property for a long time aren't 'disproprtionally punished'.

In more detail, the timeframes need to be worked out in months, not years, and as you have already realised you can deduct buying and selling costs plus the cost of any major improvements when working out the gain.

There s a CGT calculator on the gov.uk website here

Tax when you sell property: Work out your gain - GOV.UK

Sooz1966

Thank you, that's a great help. I've tried the calculator but fell at the step which asked for the amount of Private Residence Relief - it doesn't look possible to do the maths for a potential scenario. I think I'm going to accept defeat in terms of getting a ball park figure of what the liability might be; if I get it wrong, the bill could bankrupt us! Looks like it might be a job for an expert...

horsewithnoname

how much is your current home likely to increase in cost between you moving into a new home, then selling it?
if it’s worth £300,000 now say, how long before you are looking to sell, and how much will it be worth then? Surely that would be the amount that cgt would be due on?

Sooz1966

https://forums.moneysavingexpert.com/discussion/comment/81997570#Comment_81997570

Yeah, that's what you'd think isn't it; hence my point about logically, if the house doesn't sell quickly, you're more likely to reduce the price and have no gain rather than increase. However, it seems the gain is calculated from the purchase date, even if, as in our case, that's 25 years ago. Our house was bought for £160k, and is being marketed at £280k which is, potentially, an awful lot of gain and of CGT... if it ever sells.

sheramber

You will not be able to calculate the actual amount of CGT until you have the final dates and figures

You can use estimated figures to get an idea.

To calculate your PPR there is a help sheet

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

silvercar

https://forums.moneysavingexpert.com/discussion/comment/81997615#Comment_81997615

I think you are missing something in your calculations. To take your figures. Let’s assume you don’t sell for 2yrs after you buy and move into the new property. So total ownership is 27yrs. And you are exempt from CGT for the 25 yrs of it being your PPR plus the last 9 months of ownership. So the gain (280-160=120) less buying and selling costs say 10k. Leaves you with 110k on which the amount exempt from CGT is 25.75/27th of the 110k= 105k. Leaving just 5k chargeable. For a joint owned property that is 2.5k each against your CGT allowance of 3k, if not used elsewhere, leaving nothing to pay.

Sooz1966

@silvercar

Oh wow, I get it now. Thanks so much. This is the sum I needed to see!

horsewithnoname

https://forums.moneysavingexpert.com/discussion/comment/81997615#Comment_81997615

oh blimey 😳