Capital Gains Tax

[Justin]

Hello all,

I have a flat that I was able to buy very cheeply.
I joint own it with my wife.
We have lived in it for the last 2 years.
We have no other properties.

I am going to rent the flat out and move into rental accomadation.

I may wish to sell this flat in a few years.
At current market value I could sell the flat for about £70,000 more than I bought it for.

Would I have to pay Capital Gains Tax?

[Taxation Solutions]

Justin

If you and your wife have occupied the flat as your only or main residence since purchase, then you would not pay any capital gains tax for the period you lived in the flat and for a further 36 months after leaving the flat. So you could leave now and rent it out for 3 years and pay no capital gains tax.

In addition to the above you and your wife would also qualify for lettings relief which applies for properties which were once a persons main home and was subsequently rented.

When you start to receive rental income you and your wife will be responsible for reporting this income to the Inland Revenue on a self-assessment tax return.

I hope this helps.

Jason
www.propertytaxation.co.uk

[Justin]

Thanks very much for your help :)

[spencerturner]

justin

I would supplement jasons advice by saying that you should get the flat valued on the day you move out, and 3 years later too. The CGT will apply for the increase in value after you move out, hence the £70,000 increase can to date can be tax free, if handled correctly.

It is also appropriate to say that there may be advantages in this because the first 3 yr period will earn you 3 years towards your taper releif on CGT, and there is no taper releif for 3 years, then the releif is 5%per annum. It will also be relevant to consider your future housing plans==if you are buying another property, you can own 2 for one year until CGT applies, except in exceptional circumstances--you must obtain advice there too.

there is another advantage--the cost of the valuations when you move out/3 years later can be charged against the CGT when the property is ultimately sold.

and the other advantage--if you start to consider the CGT from moving out, rather than 3 yrs later, and that leads to a lower liability, then the lower tax will prevail!

RICS can provide details of a local surveyor

[Tax Accountant]

justin

I would supplement jasons advice by saying that you should get the flat valued on the day you move out, and 3 years later too. The CGT will apply for the increase in value after you move out, hence the £70,000 increase can to date can be tax free, if handled correctly.

It is also appropriate to say that there may be advantages in this because the first 3 yr period will earn you 3 years towards your taper releif on CGT, and there is no taper releif for 3 years, then the releif is 5%per annum. It will also be relevant to consider your future housing plans==if you are buying another property, you can own 2 for one year until CGT applies, except in exceptional circumstances--you must obtain advice there too.

there is another advantage--the cost of the valuations when you move out/3 years later can be charged against the CGT when the property is ultimately sold.

and the other advantage--if you start to consider the CGT from moving out, rather than 3 yrs later, and that leads to a lower liability, then the lower tax will prevail!

RICS can provide details of a local surveyor

With due respect to the respondent, the above reply contains some fundamental errors and is best ignored for what it is worth.

Basically, there is no need to obtain interim valuations etc as all gains are computed over the whole ownership period and time-apportioned.

Also Taper Relief is accrued at 5% at 3rd anniversary of ownership and increases by 5% for every complete year thereafter until it reaches 40% at the end of 10 years' ownership. It is applied to the chargeable gains remaining after indexation, PPR Relief and Lettings Relief have been deducted.

On the basis of the facts as stated by the querist, the couple would be able to continue letting the flat a good few years longer than 3 years after vacating it and still pay no or little CGT. This is due to the lettings relief of UPTO £80,000, taper relief of UPTO 40% and annual exemptions of 2 x joint-owners.

Ramnik

[Justin]

OK - now I'm a little confused.

Is it correct to say that there is no CGT to pay if I let the flat for less than 3 years?
After that period would the ammount of CGT be 'small'?
What is lettings relief?

[Tax Accountant]

OK - now I'm a little confused.

Is it correct to say that there is no CGT to pay if I let the flat for less than 3 years?
After that period would the ammount of CGT be 'small'?
What is lettings relief?

You have replies from Taxation Solutions and myself which could not be clearer.

Lettings relief is available to reduce your gains when you have sold a property which was used as your residence as well as let at some time in your ownership.

I quote from my last reply: ''On the basis of the facts as stated by the querist, the couple would be able to continue letting the flat a good few years longer than 3 years after vacating it and still pay no or little CGT. This is due to the lettings relief of UPTO £80,000, taper relief of UPTO 40% and annual exemptions of 2 x joint-owners.''.

Ramnik