CGT liability

[Tawny]

I'm trying to decide whether or nor to sell a rented property (I want to sell, my husband is scared of the CGT!)

We bought the house back in 1986 and lived in it until 1999 when we remortgaged and bought a larger house for our expanding family. The house has been rented out since then.

The mortgage on it is around 100K and the house has been valued at about 260K. The house is in both our names.

If we sell I'm hoping that we could also pay off the mortgage on the house in which we live (also around 100K) and maybe have a bit left over, but I'm not sure what the CGT would be or quite how to work it out.

Any advice would be greatly appreciated! :)

[Tax Accountant]

I'm trying to decide whether or nor to sell a rented property (I want to sell, my husband is scared of the CGT!)

We bought the house back in 1986 and lived in it until 1999 when we remortgaged and bought a larger house for our expanding family. The house has been rented out since then.

The mortgage on it is around 100K and the house has been valued at about 260K. The house is in both our names.

If we sell I'm hoping that we could also pay off the mortgage on the house in which we live (also around 100K) and maybe have a bit left over, but I'm not sure what the CGT would be or quite how to work it out.

Any advice would be greatly appreciated! :)

You don't say how much you bought it for. I am assuming that it cost £60,000. Add indexation allowance of say 66% and the base cost increases to approx £100K. This gives you an indexed gain of £160K.

You lived in the house from 1986 to 1999 = 13 years.
You let it ................. from 1999 to 2006 = 7 years.
Total ownership period from 1986 to 2006 = 20 years.

Indexed Gain as above............................................. .............= 160,000
Exempt gain = 13 years + final 3 years = 16/20 x 160,000............= 128,000

Remaining gain = 160,000 less 128,000 ...................................... = 32,000

Lettings relief 2x£40,000 =£80,000 but restricted to 7/20 x 160,000 = 56,000

Therefore, you don't have any CGT liability even before using all the lettings relief, taper relief and 2 x annual exemptions.

There is no CGT exposure even if you retain it for a few more years.

My advice is not to sell if you don't need the money and if you can find the tenants at approx £1,000pcm.

Even if you sell, seriously consider re-investing the money in other property growth areas, may be even abroad.

Using the money to pay off mortgages and/or to put the money in the bank is not generally considered a wise thing to do. You are missing out on rents and also any future growth.

Ramnik

[Tawny]

Thanks so much. We bought it for about 54K I think so you were about right!

One of the main reasons for thinking about selling is that it is getting increasing difficult to find reliable tenants (currently in the middle of the 'tenant from hell') in an area that has many many rental properties. Since last summer the house has been at least one tenant short and since January one of them hasn't paid a penny - he's gone now, but now we have to try and get our money out of him, if we can find him that is!

One thought is to sell and buy a smaller property (1/2 bed flat) and rent it to my brother (who is currently one of the guys living in the house - not the tenant from hell!)

Thanks for you help!

[Tax Accountant]

Thanks so much. We bought it for about 54K I think so you were about right!

One of the main reasons for thinking about selling is that it is getting increasing difficult to find reliable tenants (currently in the middle of the 'tenant from hell') in an area that has many many rental properties. Since last summer the house has been at least one tenant short and since January one of them hasn't paid a penny - he's gone now, but now we have to try and get our money out of him, if we can find him that is!

One thought is to sell and buy a smaller property (1/2 bed flat) and rent it to my brother (who is currently one of the guys living in the house - not the tenant from hell!)

Thanks for you help!

OK Noted.

You are welcome.

Ramnik