Capital Gains Tax question

[Kate&Hugh]

Hello,

We are thinking of selling the flat we currently rent out, and after much searching on the internet, I'm still unclear how much CGT we would have to pay.

I bought the flat in Oct 2001 for £103k and lived in it until June 2004, when I bought a new house with my partner and started to rent out the flat.
We are now thinking of selling both the flat and the house so that we can afford a bigger house, but this is not going to be viable if we are stung too much with CGT. The flat is now worth approx £155k (although I think the vast majority of that increase happened in the time I was living in the flat as the housing market here has been pretty flat for the past year).
We both currently pay the higher tax rate.

Any guidence on how much we may have to pay would be much appreciated!

Kate.

[Tax Accountant]

Hello,

We are thinking of selling the flat we currently rent out, and after much searching on the internet, I'm still unclear how much CGT we would have to pay.

I bought the flat in Oct 2001 for £103k and lived in it until June 2004, when I bought a new house with my partner and started to rent out the flat.
We are now thinking of selling both the flat and the house so that we can afford a bigger house, but this is not going to be viable if we are stung too much with CGT. The flat is now worth approx £155k (although I think the vast majority of that increase happened in the time I was living in the flat as the housing market here has been pretty flat for the past year).
We both currently pay the higher tax rate.

Any guidence on how much we may have to pay would be much appreciated!

Kate.

First of all, gain is apportioned evenly over the whole period of ownership and therefore it is not possible or necessary to apportion the gains between periods of residence and periods of lettings.

Secondly, final 3 years of ownership is exempt, regardless of the actual use during this period, so long as the property has been your only or main residence at any time in your ownership.

You were resident at the property until June 2004 and therefore three years from June 2004 to June 2007 will also be exempt due to the final 3 years exemption.

Even if you sell after June 2007, it is only the gains which is time-apportioned to the excess period after this date which may be chargeable. However, any such gains will then be covered or reduced by lettings relief of upto £40,000, taper relief of upto 40% and annual exemption.

To conclude, not only there is no Chargeable Capital Gains so long as you sell the flat before June 2007, but you don't have any CGT exposure by a long shot even if you sell a good few years after June 2007.

I hope this is helpful.

Ramnik

[Kate&Hugh]

Thank you very much for your prompt and clear response - and for putting our minds at rest! Much appreciated.

Kate and Hugh.

[Tax Accountant]

Thank you very much for your prompt and clear response - and for putting our minds at rest! Much appreciated.

Kate and Hugh.

You are welcome

Ramnik