Avoice Cgt

[stephenp]

Hi, i was wondering how to avoid CGT on the sale of a rental property, i understand that if it is you place of residance that no CGT is payble, supposing lived in it for three years and then rented it out for 10 years, how long would you have to live in it again to avoid CGT if this method is possible. your thoughts are greatly appreciated. Steve P:cool:

[Tax Accountant]

Hi, i was wondering how to avoid CGT on the sale of a rental property, i understand that if it is you place of residance that no CGT is payble, supposing lived in it for three years and then rented it out for 10 years, how long would you have to live in it again to avoid CGT if this method is possible. your thoughts are greatly appreciated. Steve P:cool:

The simple answer is that your belief is a myth. You cannot ever undo all the let years simply by taking up residence again for a period before selling the property. In the situation described by you, resuming residence during the final 3 years doesn't achieve anything at all as the final 3 years are automatically exempted as a result of your ''use of the property as your residence at anytime in your ownership''.

If you live in it for 3 years (all exempt) and then let it for 10 years (final 3 years exempt due to using it as your residence earlier) , you will have a total of 6 years exempt out of total ownership period of 13 years.

7/13ths of the total gains will be chargeable gains. This will be reduced by lettings relief upto a maximum of £40,000 (or upto a maximum of £80,000 for a couple who have both used it as their residence). The remaining chargeable gains is reduced by maximum 10 years taper relief of 40% and CGT annual allowance( currently £8,800 for each owner (ie 2 x £8,800 for a coule). CGT is payable on the rest.

Alternatively you could become non-resident for 5 or more complete UK tax years and sell the property whilst still non-resident. But you need to consider whether any tax is charged by the country to which you have become resident of.

Finally, dying is another way of avoiding CGT as all CGT is washed out at death. However, Inheritance Tax is charged at death on net estate other than the first £285,000 (including some or all of lifetime transfers) and any amount left to the surviving spouse.

Ramnik

[jeffrey]

The simple answer is that your belief is a myth. You cannot ever undo all the let years simply by taking up residence again for a period before selling the property. In the situation described by you, resuming residence during the final 3 years doesn't achieve anything at all as the final 3 years are automatically exempted as a result of your ''use of the property as your residence at anytime in your ownership''.

If you live in it for 3 years (all exempt) and then let it for 10 years (final 3 years exempt due to using it as your residence earlier) , you will have a total of 6 years exempt out of total ownership period of 13 years.

7/13ths of the total gains will be chargeable gains. This will be reduced by lettings relief upto a maximum of £40,000 (or upto a maximum of £80,000 for a couple who have both used it as their residence). The remaining chargeable gains is reduced by maximum 10 years taper relief of 40% and CGT annual allowance( currently £8,800 for each owner (ie 2 x £8,800 for a coule). CGT is payable on the rest.

Alternatively you could become non-resident for 5 or more complete UK tax years and sell the property whilst still non-resident. But you need to consider whether any tax is charged by the country to which you have become resident of.

Finally, dying is another way of avoiding CGT as all CGT is washed out at death. However, Inheritance Tax is charged at death on net estate other than the first £285,000 (including some or all of lifetime transfers) and any amount left to the surviving spouse.

Ramnik

Dying is rather extreme as a tax avoidance device and not usually recommended for most people.

[Tax Accountant]

Dying is rather extreme as a tax avoidance device and not usually recommended for most people.
I will take your word for it. But see below for clarification.

QUOTE: Dying is another way of avoiding CGT
This was meant as a tounge in cheek comment.

QUOTE: All CGT is washed out at death. However, Inheritance Tax is charged at death on net estate other than the first £285,000 (including some or all of lifetime transfers) and any amount left to the surviving spouse.
This was the real message conveyed in my reply.


Hi Jeffrey,

Yes, I agree but see my comments in red above.

Ramnik

[stephenp]

Thanks for your comments, much appreciated - what is the £40K letting relief and when does this apply?

Thanks
Steve

[Tax Accountant]

Thanks for your comments, much appreciated - what is the £40K letting relief and when does this apply?

Thanks
Steve

Letting Relief is given to reduce chargeable gains arising on the disposal of any property which has been:

'occupied as only or main residence' at anytime during the ownership
AND ALSO
'let as residential accommodation' at anytime during the ownership.

The amount of letting relief is available to each owner of the property as follows. If the property is owned by more than one person, eg a couple, each joint-owner is entitled to the letting relief in their own right against their share of the gains.

Therefore, if the property is jointly owned by 2 persons or a couple (married or simply partners), potential letting relief is upto £80,000, for 3 joint-owners it is upto £120,000, and so on.

Letting Relief is lower of:
(a) £40,000, and
(b) Equal to gain exempted as PPR relief for use as only or main residence, and
(c) Equal to gain arising as a result of letting the property.

Therefore, maximum letting relief for one person against each property sold in any given tax year is £40,000, but this could be lower depending on the amounts at (b) and (c) below.

Ramnik