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CGT and Letting Relief

edited 30 November -1 at 1:00AM in Cutting Tax
51 replies 11K views
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  • silvercarsilvercar Forumite, Board Guide
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    Njdp1 wrote: »
    Hi, I'm trying to work out if I need to pay CGT on a property I jointly own with my wife. We bought the property in July 2013 for £327,000 and lived in the property till October 2015 when we moved to Australia. We then rented the property from November 2015 till March 2017. The property was then empty till we sold it in July 2017 for $425,000. We had no other Uk income whilst overseas.

    Assuming you mean £425k not $425k.

    You each have a gain of 49k. Lets also assume buying and selling costs of 2k.

    owned it for 48 months, PPR for 27 months. last 18 months also allowed so 45/48 of 47 is exempt ie 44k is exempt and the remaining 3k would be within your CGT allowance. (Plus you have letting relief you could claim if you needed it.)

    Worth also checking Australian tax rules, to see if they impose a tax on worldwide capital gains and what that may be.
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  • edited 26 January 2019 at 6:44PM
    00ec2500ec25
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    edited 26 January 2019 at 6:44PM
    Njdp1 wrote: »
    l we sold it in July 2017 for $425,000. We had no other Uk income whilst overseas.
    :eek::eek::eek:

    so have you met the 30 day deadline for notifying HMRC that as non residents you have sold a residential property?
    https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property

    you will get a late filing penalty whether there is CGT to pay or not, unless you have the right to include it on 17/18's tax return,
    let us hope HMRC did not spot the fact the rental business ended in 16/17 or it could get rather sticky
  • Njdp1Njdp1 Forumite
    2 posts
    Thanks for the quick reply extremely helpful.
  • edited 17 July 2019 at 1:08PM
    Lamps08Lamps08 Forumite
    3 posts
    edited 17 July 2019 at 1:08PM
    Hi all – I’ve read through this forum thread and found the postings to be very helpful (particularly the first post made by 00ec25).

    However there is one element that I am not fully clear on and how it applies to me in the scenario detailed below.
    I’m not sure if the LR value is £11,146 or £14,861 (or something else)?

    Thanks in advance for any pointers!

    Purchase 55,750
    Stamp Duty, Legal, Fees etc 4,000
    Sale 300,000
    Owned 388 months: -
    Lived for first 346 months (PRR: 346+18 = 364 months)
    Vacant for next 6 months (zero relief)
    Let for final 36 months of ownership (LR: X months)
  • edited 18 July 2019 at 8:10AM
    00ec2500ec25
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    edited 18 July 2019 at 8:10AM
    Lamps08 wrote: »
    Vacant for next 6 months (zero relief)
    Let for final 36 months of ownership (LR: X months)
    18/388 = £11,146

    Where the rental business is letting property, the business can’t begin until the first property is let.
    https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2505

    no matter how long you were advertising it for letting, it was not let until the tenants moved in, once they did so any subsequent voids are included in letting provided the property is actively being marketed for let whilst void. If not (eg up for sale) it is not included in the let period, but falls into the "final period" (deemed occupation period), see example 2 (the 2014 date is for reference to when the final period reduced from 36 to 18 months)

    see example 4 in your scenario of letting continuing into the "final period"
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64737
  • 00ec2500ec25
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    xylophone wrote: »
    yes, announced Budget 2018 and consulted on in April 19 to clarify some details

    letting relief ends April 2020 hence some recent threads on here asking for calculations of before and after comparisons to inform decision when to sell

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790479/CGT_PRR_changes_to_ancillary_reliefs.pdf
  • Lamps08Lamps08 Forumite
    3 posts
    Thank you 00ec25 for the prompt response and explanation!

    Yes the removal of the LR from 06 April is exactly why I am reviewing this.

    It beggars belief that I struggled hard to keep the property when I separated from my partner when mortgage interest rates were 16%+ in the late eighties, through deferring part of the interest payments, adding material capital to the original mortgage loan, and taking in lodgers and a second job.

    So they stuffed me then, and when I thought I’d finally got my neck above the water line they are stuffing me again!

    I now cohabitate with my new partner and the rental income is currently the main part of my pension. I provide high quality accommodation (at rent that is below market rate to help minimise any churn) to very good tenants (people!) who are not looking to move on. And now I am agonising whether to sell and start again, with the tenants losing their home in the process – or take the future hit on the CGT (I’ve calculated this to be c£13k by 2027).

    This was announced in the November budget – but followed by a consultation process that wasn’t concluded until only this month - with no change from the original announcement. So how does that work for anyone impacted who signed a 12 month AST since March.

    Sob story and rant over – sorry – promise not to do it again!
  • edited 18 July 2019 at 9:42PM
    00ec2500ec25
    9.1K posts
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    edited 18 July 2019 at 9:42PM
    Lamps08 wrote: »
    future hit on the CGT (I’ve calculated this to be c£13k by 2027).
    if that is the net impact of lost LR offset by 7 years of rental profit then it is a trivial value that could easily be wiped out by a few years of further capital growth.

    I thought you were looking at a total loss, ie the full 40k of LR - that would be worth further consideration but only in so far as the maximum tax you would ever have to pay (current tax rates and rules obviously) on loss of LR is 40,000 x 28% = 11,200 tax payable. For many people that is "only" a few years of rental profit...

    if your 13k refers to lost gain, then the tax is but £3,640 which, even for a pensioner, is not much.... ?
  • edited 19 July 2019 at 9:38AM
    Lamps08Lamps08 Forumite
    3 posts
    edited 19 July 2019 at 9:38AM
    This is a head scratcher for me - reason being is that the property rental is currently the main part of my pension - and because we don’t have a crystal ball on life expectancy I currently don’t plan on disposing in 2027.

    A) If I sell/exchange contracts by 05 April 2020 – I have calculated that zero CGT is due (using the £12,000 allowance)

    B) If I sell in April 2022, based on the new legislation and assumed sale price was still £300,000, £5,947 CGT will be due (@28% using the £12,000 allowance)

    C) If I sell in April 2027, based on the new legislation and assumed sale price was still £300,000, £13,315 CGT will be due (@28% using the £12,000 allowance)

    D) If I sell in April 2037, based on the new legislation and assumed sale price was still £300,000, £23,571 CGT will be due (@28% using the £12,000 allowance)

    E) If I sell in April 2047, based on the new legislation and assumed sale price was still £300,000, £30,369 CGT will be due (@28% using the £12,000 allowance)


    In summary I could go with: -

    · Option A, avoiding CGT, and buy a new rental property for £300k incurring £14k SDLT + other costs

    · Option B, incurring £5,947 CGT (based on the new legislation) and buy a new rental property for £300k incurring £14k SDLT (assuming current rules) + other costs. Benefit of doing this would be to retain the current tenants who have rented for c3 years and don’t appear to have alternative plans.

    · Option E, incurring £30,369 CGT (based on the new legislation) and buy a new rental property for £300k incurring £14k SDLT (assuming current rules) + other costs

    · Something else?


    I appreciate the opportunity to bounce this one around. Thoughts?
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