How much CGT if I sell a letting house owned for 20yrs?

[ALIEN1X]

Hello,

I have a house that I bought new in 1988 costing £70,000, only lived there for a month.Unfortunately my circumstance changed and things did not go according to plan.

So moved in with family and rented the house out.

The house is now empty and not let out after years of letting out , I have no plans to rent out due to all the hassles. This is my only house and I want to sell and buy a bigger house to live in.

The value of my house is approx £150,000 - do I have to pay capital gains and how much?

Regards
Alien1x

[Tax Accountant]

Hello,

I have a house that I bought new in 1988 costing £70,000, only lived there for a month.Unfortunately my circumstance changed and things did not go according to plan.

So moved in with family and rented the house out.

The house is now empty and not let out after years of letting out , I have no plans to rent out due to all the hassles. This is my only house and I want to sell and buy a bigger house to live in.

The value of my house is approx £150,000 - do I have to pay capital gains and how much?

Regards
Alien1x

Your original cost of £70,000 in 1988 is increased in line with inflation (Indexation Allowance) upto April 1998 by about 50% to £105,000.

Based on the present value of £150,000, your gain is £45,000 over a period of approximately 18 years. Therefore, average yearly gain has been £2,500.

I assume that the 1 month you lived in the property at the beginning can be shown as being used as your only or main residence.

If so, your exempt gain is 1 month you lived at the property as your main residence plus the final 3 years automatic exemption, say £8,000, leaving exposed gain of £37,000.

You will have lettings relief of approximately the same as your exempt gains, ie £8,000, leaving £29,000.

Taking away taper relief of approx 35%, ie approx £10,0000, leaves £19,000.

Taking away annual personal exemption of £8,500 leaves approximately £10,000 taxable gains. This will be added to your other taxable gains and taxable income of the year of disposal and taxed as your top slice of the total, ie at 20% and/or 40% depending on how much falls into each band.

If you are able to return to the property as your only or main residence before you sell, you may be able to claim a further exemption of 3 years under the heading of ''absences for whatever reason, totalling not more than 3 years in all'', see Inland Revenue Help Sheet IR 283.

You should also look into the possibility of using the house as your secondary residence, ie like a second home, and nominate it for CGT purposes as your main home and back-date this to the date your last tenant moved out, provided that this is not more than 2 years ago. Such a nomination may be sufficient to establish residence for the purposes of the previous paragraph.

I hope this has been helpful.

Ramnik

[ALIEN1X]

Hi,
So are saying I will be taxed approx £10,000 or on £10,000 gain?

Regards
Alien1x

[Tax Accountant]

Hi,
So are saying I will be taxed approx £10,000 or on £10,000 gain?

Regards
Alien1x

I repeat the relevant paragraph from my reply:

''Taking away annual personal exemption of £8,500 leaves approximately £10,000 taxable gains. This will be added to your other taxable gains and taxable income of the year of disposal and taxed as your top slice of the total, ie at 20% and/or 40% depending on how much falls into each band.''

Basically, you will be taxed on £10,000 and your tax thereon will be between £2,000 to £4,000.

Ramnik

[ALIEN1X]

Hi Ramnik,

Thank you for reply,your advise has been very helpfull.

Regards
ALIEN1X

[Tax Accountant]

Hi Ramnik,

Thank you for reply,your advise has been very helpfull.

Regards
ALIEN1X

You are welcome
Ramnik

[ALIEN1X]

'If you are able to return to the property as your only or main residence before you sell, you may be able to claim a further exemption of 3 years under the heading of ''absences for whatever reason, totalling not more than 3 years in all'', see Inland Revenue Help Sheet IR 283.'

Hi,

You had mentioned the above, so if I move in what is the minimum amount of stay before I can sell and get a further 3 years exemption.

i.e is 1 month stay enough before I sell?

Regards
Alien1x

[Tax Accountant]

'If you are able to return to the property as your only or main residence before you sell, you may be able to claim a further exemption of 3 years under the heading of ''absences for whatever reason, totalling not more than 3 years in all'', see Inland Revenue Help Sheet IR 283.'

Hi,

You had mentioned the above, so if I move in what is the minimum amount of stay before I can sell and get a further 3 years exemption.

i.e is 1 month stay enough before I sell?

Regards
Alien1x

No set time is mentioned in the legislation. It is the quality of residence which is important and not the length of stay.

1 month is normally not long enough to establish that you have used the house as your only or main residence. A period of 3 to 6 months is often mentioned by professionals.

Ramnik

[jonblair123]

I bought a house in 2000, lived there till 2004.During that time, i let remaining two rooms under rent a room scheme. I went to Canada in 2004, and rented the house till May 2006. I now have decided to settle in Canada,and am selling, with a gain of 85,000 pounds. Will I have to pay CGT?...Any clarification will be greatly appreciated.

[jonblair123]

Hi all, found the answer to my query in another post. Ramnik clarified this. There is no CGT to pay for the duration you live there. Then, there is no CGT to pay in the three years prior to sale. So, if these periods overlap, he entire period, from buying to selling is CGT free, even though for the last two years the house was let. The question now is, do I have to fill in the CGT section of my self assessment tax return, to say that I have made this gain, supply all the information and explain there is no CGT liabilty, or do I simply ignore this section?

[Tax Accountant]

Hi all, found the answer to my query in another post. Ramnik clarified this. There is no CGT to pay for the duration you live there. Then, there is no CGT to pay in the three years prior to sale. So, if these periods overlap, he entire period, from buying to selling is CGT free, even though for the last two years the house was let. The question now is, do I have to fill in the CGT section of my self assessment tax return, to say that I have made this gain, supply all the information and explain there is no CGT liabilty, or do I simply ignore this section?

Glad that you seem to have found the answer in one of my previous posts.

You are correct in what you say; however, you also seem to be a non-resident since 2004. As such you are not liable to UK CGT so long as you remain non-residenct for at leasy 5 years and sell during your non-residency.

As far as tax return is concerned, you don't have to declare anything. However, it is advisable to state in the 'additional information' box to state that your last 2 letting years are covered by the final 3 years exemption and therefore there is no chargeable gains arising. You may also state that you are non-resident as from xxxx date.

But check with your new residence country if you are liable to that country's tax.

Ramnik

[Sven]

Hello,

apologies for hijacking this thread. I am in a very similar situation (having lived in a property for 3 months before renting it out for the last 2 1/2 and now thinking about selling). Can I assume that there is no CGT due for the last 3 years? And if I had rented out for more than 3 years can I assume CGT exemption of £8,200 (2004-05), £8,500 (2005-2006) and £8,800 (2006-2007), so in total £25,000 for these three tax years? Times two as I am co-own with my wife?

[Tax Accountant]

Hello,

apologies for hijacking this thread. I am in a very similar situation (having lived in a property for 3 months before renting it out for the last 2 1/2 and now thinking about selling). Can I assume that there is no CGT due for the last 3 years? And if I had rented out for more than 3 years can I assume CGT exemption of £8,200 (2004-05), £8,500 (2005-2006) and £8,800 (2006-2007), so in total £25,000 for these three tax years? Times two as I am co-own with my wife?

Hi Sven,

(1) Any property which has been your 'only or main RESIDENCE' at anytime in your ownership will have the last 3 years of ownership exempted from CGT. You say that you lived in the property for only 3 months before renting it out. It is important that you are able to establish that you occupied the property during those 3 months as your 'only or main RESIDENCE'. Residence test is a question of quality and not how long you lived there. Therefore, 3 months on its own is not a hurdle, but the longer the period of residence, the easier it is to demonstrate RESIDENCE. You should examine very carefully the reasons why you needed to move out of the property so soon after buying it. Can you really demonstrate to the tax office that you intended to occupy the property for a long period when you bought it and moved there at the beginning? If so, what made you move out within only 3 months?

It is only if you pass the occupation test as 'only or main RESIDENCE' that you will be allowed the final 3 years exemption. You should also remember that you cannot benefit from the private residence exemption if you bought the property in the first place for the main purpose of realising a gain on eventual disposal.

(2) Any property which has been your 'only or main residence' at any time in your ownership, and also let as residential accommodationat any time in your ownership, will also qualify for 'lettings relief' against gains not covered by private residence relief.

(3) Additionally, non-business asset taper relief is also available after 3 complete years of ownership.

(4) Any gains still remaining exposed after the reliefs described above, can be reduced by Annual Exemption which is currently £8,800 per individual person. A couple holding an asset jointly will each have £8,800 against his/her share of the chargeable gains.

However, any Annual Exemptions unused in prior years are not available to be used against gains of later years. Only current year's Annual Exemption is available to use against current year's chargeable gains. If any Annual Exemption has not been used in any particular tax year, it is lost forever.

Also remember that you have only one Annual Exemption available against your total net chargeable gains (after losses) from all chargeable disposals during that year. Therefore, if the Annual Exemption has been used up against gains from share disposals, it is no longer available against gains from sale of investment property.

I hope this helps.

Ramnik

[Sven]

Thank you. This helps a lot.
The reason we moved out after only 3 months and started renting out was that I was informed I would lose my job the day after I completed on the property. Having bought it for way above average and ending up having to move to the other side of the country for my new job left me with little choice but renting out until prices in the neighborhood picked up to a similar level. We had council tax and car insurance and the lot from this address. So proving that we were legit shouldn't be too difficult.
many thanks for your help.
Sven

[Tax Accountant]

Thank you. This helps a lot.
The reason we moved out after only 3 months and started renting out was that I was informed I would lose my job the day after I completed on the property. Having bought it for way above average and ending up having to move to the other side of the country for my new job left me with little choice but renting out until prices in the neighborhood picked up to a similar level. We had council tax and car insurance and the lot from this address. So proving that we were legit shouldn't be too difficult.
many thanks for your help.
Sven
That sounds OK.

Ramnik