Capital gains tax query

[sarah2000]

I've got a property which I bought to let out and have always had a buy to let mortgage on it. I don't own any other properties (I rent where I currently live). Will i need to pay capital gains tax when I come to sell it or is there any way around having to pay the capital gains tax. Any advice would be appreciated as I find the rules relating to capital gains tax hard to understand.

Thanks!

[Tax Accountant]

I've got a property which I bought to let out and have always had a buy to let mortgage on it. I don't own any other properties (I rent where I currently live). Will i need to pay capital gains tax when I come to sell it or is there any way around having to pay the capital gains tax. Any advice would be appreciated as I find the rules relating to capital gains tax hard to understand.

Thanks!

If it has not been your only or main RESIDENCE at anytime in your ownership, you will be liable to Capital Gains Tax when you sell. The gain will be reduced by taper relief which is 5% after 3 complete years ownership and rising by 5% for each complete additional year until it reaches a maximum of 40% after 10 complete years. It will also be reduced by your annual exemption in the year of disposal.

The best way to reduce your CGT is to use your property as your only or main RESIDENCE at sometime in your ownership. Although use as residence does not have to be for a specific period of time, at least 6 months is normally recommended. This will give you valuable PPR relief and lettings relief. For full details, you should read HMR&C's website.

Ramnik

[ivrytwr3]

Ramnik,

Sorry to hijack this thread. You seem a very knowledgable person with regards to tax etc. My property was bought with a regular mortgage (joint ownership with wife) and have now had a consent to let agreed. At no time have i resided in the property, nor do i intend to. It is my only property; the accommodation in which i reside is privately let. I am in the Forces and the only reason i have not moved into the property is because of my job location.

I intend to let the property for 5 years and then sell.

Am i liable for CGT? And do i get any tax relief with regards to my job?

[Tax Accountant]

Ramnik,

Sorry to hijack this thread. You seem a very knowledgable person with regards to tax etc. My property was bought with a regular mortgage (joint ownership with wife) and have now had a consent to let agreed. At no time have i resided in the property, nor do i intend to. It is my only property; the accommodation in which i reside is privately let. I am in the Forces and the only reason i have not moved into the property is because of my job location.

I intend to let the property for 5 years and then sell.

Am i liable for CGT? And do i get any tax relief with regards to my job?

You should read HMR&C Help Sheet IR 283 under the paragraph ''Job-related accommodation''.

I assume you are living in a licenced accommodation.

The above mentioned Help Sheet states:

'' If you live in accommodation that is job-related and you also own a dwelling-house that YOU INTEND TO OCCUPY AS YOUR ONLY OR MAIN RESIDENCE, the dwelling-house you YOU INTEND TO OCCUPY is treated as actually being occupied by you as a residence during the period in which you have THE INTENTION TO OCCUPY IT, even if you never actually live there. This means that you may nominate that residence as your only or main residence and get relief on the whole or a part of the gain.''

You need to nominate within 2 years of having the the residence which is actually let.

It is important for you to realise that you can benefit from the above ONLY if you have the INTENTION TO OCCUPY AS YOUR ONLY OR MAIN RESIDENCE the property which is presently let. The benefit of the above statement ceases as soon as your intention to occupy it ceases, eg, you buy another residence which then you intend to use in due course as your only or main residence.

Ramnik

[ivrytwr3]

You need to nominate within 2 years of having the the residence which is actually let.

Do you have a link to this page? Also, how do i "nominate" the residence? (or is that info in the help sheet?)

Thanks Ramnik; you're the man!!

[sarah2000]

Thanks for your reply Ramnik,

I bought the house in 2002 for pounds 79,000 with a mortgage of 59,000. i doubt i'll ever live in it but probably won't sell it for a while as i'm keeping it as a pension pot. if i did come to sell it though, say after 10 years of having it let out (and never having lived in it) how would i work out how much cgt i would have to pay? can you give me some idea of the amount i'd have to pay? i had a look at the website you recommended but it wouldn't let me open any of the manuals.

thank you.

[Tax Accountant]

.

Do you have a link to this page? Also, how do i "nominate" the residence? (or is that info in the help sheet?)

Thanks Ramnik; you're the man!!

Try this.
http://www.hmrc.gov.uk/helpsheets/ir283.pdf

Nomination is by writing a letter to your tax office. Remember, it is important for you to realise that you can benefit from the above ONLY if you have the INTENTION TO OCCUPY AS YOUR ONLY OR MAIN RESIDENCE the property which is presently let.

Ramnik

[Tax Accountant]

Thanks for your reply Ramnik,

I bought the house in 2002 for pounds 79,000 with a mortgage of 59,000. i doubt i'll ever live in it but probably won't sell it for a while as i'm keeping it as a pension pot. if i did come to sell it though, say after 10 years of having it let out (and never having lived in it) how would i work out how much cgt i would have to pay? can you give me some idea of the amount i'd have to pay? i had a look at the website you recommended but it wouldn't let me open any of the manuals.

thank you.

Lets not worry too much about it if you don't intend to sell it for a long time.

Ramnik

On second thoughts, if the gain is £100,000, taper relief will be 40% leaving £60,000 less annual exemption in 10 years time say £15,000 leaving £45,000 to be added to your other taxable income and gains in the year of disposal. It will be taxed at 10% and/or 20% and/or 40% depending on how much of the chargeable gain falls into each of the tax brackets. At a rough guess, the CGT would be £15,000. All assuming legislation remains same as now.

Ramnik

[ivrytwr3]

Ramnik,

Got the link and saved the pdf for future reference! I am a forced first time land lord (due to work commitments) and so am really winging this letting lark. You say i have to write to my local tax office informing them of my INTENTION TO OCCUPY. I really have no idea what to write ie what info they require, what i should be saying and what i shouldn't be saying ;)

If there is a set format/letter/official application, please let me know, otherwise if not, i will contact the tax office and ask them direct (who exactly deals with this type of enquiry anyway?)

Thanks again!

[Tax Accountant]

Ramnik,

Got the link and saved the pdf for future reference! I am a forced first time land lord (due to work commitments) and so am really winging this letting lark. You say i have to write to my local tax office informing them of my INTENTION TO OCCUPY. I really have no idea what to write ie what info they require, what i should be saying and what i shouldn't be saying ;)

If there is a set format/letter/official application, please let me know, otherwise if not, i will contact the tax office and ask them direct (who exactly deals with this type of enquiry anyway?)

Thanks again!

It is quite common for people in your position to feel vulnerable for the time when you no longer have the work related residence. To get your foot on the property ladder, it is quite natural to buy a BTL property which you can use as your residence in due course. However, in the future, your circumstances could change and you may wish to buy a more appropriate property for your residence. If so, you could buy a second property in addition to, or in place of, the first property. If you retain the BTL and buy a second property, you would need to make another nomination at that time to nominate which one of these you intend to use as your only or main residence from then on. If you nominate in favour of the second one, the first property will benefit from exemption only until then and the second property will start benefitting from then onwards.

If you bought the first property on the basis that you intended to occupy this as your only or main residence when you no longer had the work related property, and this intention existed all along until now, you would write along the following lines:

''I live in a licenced property at .... provided by my my employer. I bought a property at.... on... and have always intended to occupy this as my only or main residence when I no longer have the work related residence.

Accordingly, I wish to nominate my owned property at... as my only or main residence for Capital Gains Tax purposes.

I have been letting my owned property since .... and have been declaring my lettings profit every tax year since the beginning.

Please acknowlegde and confirm that I am deemed to have been occupying my owned property as my only or main residence since the date of purchase notwithstanding that I have not resided at that property at all and that it has been let from the beginning.''

I do not accept any responsibility for the above advice. I strongly advice you seek professional advice and get the accountants to write the appropriate letter to the tax office on your behalf.

Ramnik

[ivrytwr3]

Accountant? What accountant? Like i said i'm winging it!! :D

I do have a solictor who helped me through the actual house sale, i think i may drop him a line and see if he is in a position to write this letter and what it would cost me.

Thank you very much for your time and advise, it's a shame there isn't a "thanks" button on this forum!!

[Tax Accountant]

Accountant? What accountant? Like i said i'm winging it!! :D

I do have a solictor who helped me through the actual house sale, i think i may drop him a line and see if he is in a position to write this letter and what it would cost me.

Thank you very much for your time and advise, it's a shame there isn't a "thanks" button on this forum!!

You are welcome.
Yes, there isn't a thanks button but it better this way because this enables people to express themselves in a personal way if they so wish. You will be surprised how many people don't bother at all.

There is a ''star rating'' button though.

Ramnik