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  • FIRST POST
    afordom
    Capital Gains Tax on sale of rented property
    • #1
    • 29th Jan 13, 7:38 PM
    Capital Gains Tax on sale of rented property 29th Jan 13 at 7:38 PM
    Dear all,

    I am slightly confused regarding my potential liability for capital gains tax on the sale of a property I own. I purchased the house in 2003 for 92000 and lived in it until 2008. Ever since, the property has been rented out and I now own another property some distance away which I live in and is my only residence. I would have chosen to sell the property back in 2008 but felt prices were so deflated that I chose to rent it instead. I would call myself a reluctant or accidental landlord in this sense.
    I have been told by the accountant that does my tax return I would be liable for some CGT on the sale of the property, especially as I haven't lived in the house in the last three years. This would seem to contradict other advice I have been given regarding 'Lettings Relief' I would be able to claim if I sold the property. My accountant has talked about switching my main residence etc before the sale but this all seems a bit of a faff to me, especially if I am not, in fact liable for CGT at all. If I sold the property now, (which I am considering) I think I would probably get 140,000 on a good day.
    Any help or advice very much appreciated.

    Alistair
Page 1
    • 00ec25
    • By 00ec25 29th Jan 13, 7:54 PM
    • 6,256 Posts
    • 5,782 Thanks
    00ec25
    • #2
    • 29th Jan 13, 7:54 PM
    • #2
    • 29th Jan 13, 7:54 PM
    Any advice very much appreciated.
    Originally posted by afordom
    Get a better accountant !

    using your numbers but understand the calculation must be in months not years and you also have the costs of purchase and sale to deduct

    owned for 11 years (03 to 13)
    A) gain 140 - 92 = 48

    B) PPR exemption for 6 years (03 to 08) plus because it was once your main home the 3 year rule applies, total exemption therefore 9/11 x 48 = 39,272

    C)letting relief because it was once your main home, lower of
    a) PPR 39,272
    b) gain in let period 2/11 x48 = 8,727
    c)40,000

    D) annual allowance 10,600

    Net CGT liability: A-B-C-D = zero .
    Final position = no net gain, no tax to pay, incompetent accountant sacked
  • afordom
    • #3
    • 29th Jan 13, 8:23 PM
    • #3
    • 29th Jan 13, 8:23 PM
    Thanks so much for your speedy and detailed reply. Betty much appreciated.
  • afordom
    • #4
    • 29th Jan 13, 8:40 PM
    • #4
    • 29th Jan 13, 8:40 PM
    Sorry - meant 'very' much appreciated
    • jsambrook
    • By jsambrook 3rd Jan 15, 9:10 PM
    • 11 Posts
    • 3 Thanks
    jsambrook
    • #5
    • 3rd Jan 15, 9:10 PM
    Similar Situation
    • #5
    • 3rd Jan 15, 9:10 PM
    Hi

    I am in pretty much the same situation, and I have tried to replicate your calculations, but have failed at step C!!!

    I bought my property February 2002 and moved out of the property in May 2011 and have rented it out since. I am planning on selling it in six months or so and would like to know if I need to factor in any CGT tomy budgeting. It is the only property that I own.
    Many thanks
    • Leven
    • By Leven 3rd Jan 15, 9:46 PM
    • 91 Posts
    • 79 Thanks
    Leven
    • #6
    • 3rd Jan 15, 9:46 PM
    • #6
    • 3rd Jan 15, 9:46 PM
    Quick question - if an investment property is jointly owned by two people, when eventually sold, is the CGT allowance doubled accordingly or is it limited to a single allowance that is applied to the property and not the two people?
    • kinger101
    • By kinger101 3rd Jan 15, 10:19 PM
    • 4,137 Posts
    • 5,625 Thanks
    kinger101
    • #7
    • 3rd Jan 15, 10:19 PM
    • #7
    • 3rd Jan 15, 10:19 PM
    Quick question - if an investment property is jointly owned by two people, when eventually sold, is the CGT allowance doubled accordingly or is it limited to a single allowance that is applied to the property and not the two people?
    Originally posted by Leven
    Each person gets their own CGT allowance. They are taxed on their share of the capital gain.
    • kinger101
    • By kinger101 3rd Jan 15, 10:26 PM
    • 4,137 Posts
    • 5,625 Thanks
    kinger101
    • #8
    • 3rd Jan 15, 10:26 PM
    • #8
    • 3rd Jan 15, 10:26 PM
    Hi

    I am in pretty much the same situation, and I have tried to replicate your calculations, but have failed at step C!!!

    I bought my property February 2002 and moved out of the property in May 2011 and have rented it out since. I am planning on selling it in six months or so and would like to know if I need to factor in any CGT tomy budgeting. It is the only property that I own.
    Many thanks
    Originally posted by jsambrook
    Post the purchase price and projected sale price, and I can do a back of envelope job as an illustration. NB, rules have changed slightly since original post, so don't use that as a guideline. The 3 year additional PPR exemption is now 18 months. I'll explain more when you give figures.
    • jsambrook
    • By jsambrook 3rd Jan 15, 10:38 PM
    • 11 Posts
    • 3 Thanks
    jsambrook
    • #9
    • 3rd Jan 15, 10:38 PM
    • #9
    • 3rd Jan 15, 10:38 PM
    Thanks
    I purchased it for 29000 in 2002 and will be lucky if I get 80000
    • kinger101
    • By kinger101 4th Jan 15, 12:46 AM
    • 4,137 Posts
    • 5,625 Thanks
    kinger101
    OK, Let's say you sell the property in March 2015 for 80K, but the EA fees etc total 1K.

    Sales proceeds = 80,000
    less EA fees - 1,000

    Net proceeds 79,000
    less
    Purchase price -29,000

    Capital gain = 50,000.

    The property has been owned for 13 years a 1 month (156 months)

    You lived in the property from Feb 2002 to May 2011, making it your principle private residence (PPR) for 111 months. In addition to this, where the property was once your home, the last 18 months of ownership are also deemed as qualifying for PPR, bring the total PPR up to 129 months.

    50,000 x 129/156 = 41,346 of PPR.

    For the remaining period of ownership, the property was let (NB, we exclude the last 18 months which qualify for PPR). So the letting period is 27 months.

    This attracts letting relief, which is calculated as being the lower of;

    (a) 40,000;
    (b) the PPR claimed of 41,346; and
    (c) the gain attributed to the letting period, i.e, 50,000 x 27/156 = 8,654

    So the chargeable gain is 50,000 - 41,346 (PPR) - 8,654 (LR) = 0

    So it looks like no tax is payable.
    • madnatty_a
    • By madnatty_a 5th Mar 16, 8:09 AM
    • 4 Posts
    • 0 Thanks
    madnatty_a
    Help with capital gains tax calulation..new rules?
    Hello,
    I can see this is an old post but need some help working out if I will owe Capital gains tax.
    I brought my house in Aug 2010 for 125k I lived in it till Mar 14. It has been rented out till Mar 16.
    I am hoping to sell it for 200k.

    And advice as now aware there are certain tax changes.
    Always loking for a bargain friends call me a magpie!
    • Bluebirdman of Alcathays
    • By Bluebirdman of Alcathays 5th Mar 16, 8:29 AM
    • 2,790 Posts
    • 3,171 Thanks
    Bluebirdman of Alcathays
    Hello,
    I can see this is an old post but need some help working out if I will owe Capital gains tax.
    I brought my house in Aug 2010 for 125k I lived in it till Mar 14. It has been rented out till Mar 16.
    I am hoping to sell it for 200k.

    And advice as now aware there are certain tax changes.
    Originally posted by madnatty_a
    A lot of the advice earlier is out of date, tax rules have changed. Start your own thread - preferably on the cutting tax board.
    • silvercar
    • By silvercar 5th Mar 16, 8:40 AM
    • 37,100 Posts
    • 156,291 Thanks
    silvercar
    Hello,
    I can see this is an old post but need some help working out if I will owe Capital gains tax.
    I brought my house in Aug 2010 for 125k I lived in it till Mar 14. It has been rented out till Mar 16.
    I am hoping to sell it for 200k.

    And advice as now aware there are certain tax changes.
    Originally posted by madnatty_a
    The change that effects you is that it is now only the last 18 months of ownership that are exempt from CGT for properties that were once your home, not 3 years as used to be the case.

    In your case you have exemption for all but 6 months. Added to which you have letting relief, so unlikely you will have any tax to pay.

    This all depends how quickly you sold the property.
    • booksurr
    • By booksurr 5th Mar 16, 4:39 PM
    • 3,613 Posts
    • 3,997 Thanks
    booksurr
    post #10 sets out the mechanics of the calculation. The only thing which has changed since #2 is the final "3 year rule" is now the final 18 months of ownership everything else remains the same about how you calculate the liability

    1. gross gain
    2. private residence relief: ownership period (in months) period lived in plus final 18 months of ownership (assuming this does not overlap of course)
    3 letting relief
    4 personal allowance (currently 11,100)

    taxable gain = 1 - 2 - 3 - 4

    here is an example with some numbers if that helps
    http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6
    • Kazza181081
    • By Kazza181081 2nd Nov 17, 11:58 AM
    • 2 Posts
    • 0 Thanks
    Kazza181081
    Do i have to pay Capital Gains Tax on sale of only home i own?
    Hi, Slightly confused where I stand regarding Capital Gains Tax?
    I purchased property back in 2003 for 130k with ex partner, he moved out in 2006 & I continued to live there until 2010. In 2010 I moved in with my new partner (his home) and the property has been rented out for 5yrs of the last 7years (18mths - 2years property was empty) I am now selling my property for 297k property is still jointly owned with my ex partner - I am not sure where I stand in paying Capital Gains Tax and if so how much I am looking likely to pay!? Any advise would be hugely appreciated.
    Thanks in advance
    Karen
    • 00ec25
    • By 00ec25 2nd Nov 17, 4:11 PM
    • 6,256 Posts
    • 5,782 Thanks
    00ec25
    Hi, Slightly confused where I stand regarding Capital Gains Tax?
    I purchased property back in 2003 for 130k with ex partner, he moved out in 2006 & I continued to live there until 2010. In 2010 I moved in with my new partner (his home) and the property has been rented out for 5yrs of the last 7years (18mths - 2years property was empty) I am now selling my property for 297k property is still jointly owned with my ex partner - I am not sure where I stand in paying Capital Gains Tax and if so how much I am looking likely to pay!? Any advise would be hugely appreciated.
    Thanks in advance
    Karen
    Originally posted by Kazza181081
    yes you are liable, however, whether you have an actual net liability and therefore have to pay any tax depends on your numbers

    it is not exempt simply because you only one one property. The requirement for exemption is it must be your actual home that you live in, you don't, you live in your boyfriend's place

    the mechanics of the calculation are shown in previous posts above. Feel free to do your own calculation and list it here, someone will check and tell you if it's correct.
    • Kazza181081
    • By Kazza181081 2nd Nov 17, 9:47 PM
    • 2 Posts
    • 0 Thanks
    Kazza181081
    Property sells December 2017 for 297,500K, but the EA fees etc total 5K.

    Sales proceeds = 297,500
    less EA fees - 5,000

    Net proceeds 292,500
    less
    Purchase price -130,000

    Capital gain = 162,500.

    The property has been owned for 14 years & 5 months (173 months)

    I lived in the property from July 2003 to August 2010, making it your principle private residence (PPR) for 85 months. In addition to this, where the property was once my home, the last 18 months of ownership are also deemed as qualifying for PPR, bring the total PPR up to 103 months.

    162,500 x 103/173 = 96,450 of PPR.

    For the remaining period of ownership, the property was let (NB, we exclude the last 18 months which qualify for PPR). So the letting period is 52 months.

    Not 100% on how this part is calculated? I have assumed....

    162,500 x 52/173 = 48,693

    So the chargeable gain is
    162,500 - 96,450 (PPR) - 48,963 (LR) - 11,500 (personal tax allowance) = 5,587.00?

    Is it the correct calculation? And is the capitals gains tax then worked out on the 5587.00? What percentage is CGT charged at also?

    Please also remember this property is jointly owned? How will we both pay this amount?

    Also is the 11,500 tax allowance the same allowance that is used for your wages? Or is this completely separate? As my wages cover this amount?

    Sorry for all the questions! Thank you for helping me. Karen

    So it looks like no tax is payable.
    • 00ec25
    • By 00ec25 2nd Nov 17, 11:02 PM
    • 6,256 Posts
    • 5,782 Thanks
    00ec25
    So it looks like no tax is payable.
    Originally posted by Kazza181081
    yes, but not the way you show it

    1. you jointly own. In the absence of exact confirmation let's assume that means 50/50 rather than unequal shares

    2. the gross gain appears to be 162,500 (hint: no buying costs?)

    3. due to the success of women's lib, each owner declares their own tax individually, thus each owner appears to have a gain of 162.5/2 = 81,250

    4. the property was purchased in July 2003 and sold in Dec 2017. That is 174 months ownership, not 173. It was lived in "to" Aug 2010, but we will assume you mean it was vacated by 31 July and thus is 85 months of physical occupation as the main home, not the 86 that would include Aug. The final 18 months span 1 July 2016 to "December" 2017.
    PRR thus being the 103 months you state.

    5. PRR = 81,250 x103/174 = 48,096

    6. LR, as stated in 2 previous posts, is the LOWER OF
    a) PRR: 48,096
    b) gain in the let period, but the property was not let for 2 years and in fact sat empty (it was an unoccupied property) so you cannot include that in this calculation. The exact dates of the empty period have not been given, so we will assume they are NOT at the end of the ownership (ie overlapping the final 18 months period) so, mathematically: 174 (ownership) - 103 (PRR) - 24 ("2" years empty) = 47 months let period. Therefore 81,250 x 47/174 = 21,946 gain in let period
    c) max allowed 40,000
    The LOWEST value is b) 21,946

    7. the CGT personal allowance is entirely distinct from the income tax allowance and is listed on many websites. For 17/18 it is 11,300 https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances

    8. net taxable gain = step 3 - step 5 - step 6 - step 7
    81,250 - 48,096 - 21,946 - 11,300 = -92. In tax speak you cannot be taxed on a minus number,so in reality that means the net taxable gain is ZERO

    9. with a zero net taxable gain then basic maths says 0 x 18% or 28% (the tax rates are easily googled) = 0 tax payable

    the reason 0 tax is payable is because the 174 months of gain is covered by :
    a) 103 months of PRR
    b) 47 months of LR
    and
    c) in respect of the 24 months non let and empty period, the CGT personal allowance absorbs that element of gain
    Last edited by 00ec25; 03-11-2017 at 10:13 AM.
    • Ashworth1
    • By Ashworth1 10th Jan 18, 4:32 PM
    • 2 Posts
    • 0 Thanks
    Ashworth1
    I know this thread has been running for some time, but I have a related query. I lived in my house for 9 years and then moved away and let it out. My question is about allowable expenses as I had a lot of improvement work done when I moved in - loft conversion, extension, knocking down internal walls. This definitely increased the value of the property but are they allowable expenses as they were incurred 9 years before I let it out? I'd appreciate any advice on this.
    • ProDave
    • By ProDave 10th Jan 18, 5:42 PM
    • 783 Posts
    • 851 Thanks
    ProDave
    Get a better accountant !

    using your numbers but understand the calculation must be in months not years and you also have the costs of purchase and sale to deduct

    owned for 11 years (03 to 13)
    A) gain 140 - 92 = 48

    B) PPR exemption for 6 years (03 to 08) plus because it was once your main home the 3 year rule applies, total exemption therefore 9/11 x 48 = 39,272

    C)letting relief because it was once your main home, lower of
    a) PPR 39,272
    b) gain in let period 2/11 x48 = 8,727
    c)40,000

    D) annual allowance 10,600

    Net CGT liability: A-B-C-D = zero .
    Final position = no net gain, no tax to pay, incompetent accountant sacked
    Originally posted by 00ec25
    Excellent summary.

    But what is this "3 year rule"?

    I thought the last 18 months was exempt from CGT if it had previously been your main residence?

    I will be in a similar position soon so trying to understand how many years I can rent it before it becomes due for CGT.
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