Confused novice CGT

[cris2fer]

Hi,


I bought a property 3 years ago for £70000 and it has been my main residence, i am now

thinking about renting it.

As i understand,

1. The property is now worth £140000, if i sell it now there is no capital gains tax.

2. If i rent the property out for UP TO 3 years and sell it, there is no capital gains tax.

3. However if i rent the property for over 3 years, because it is not my main residance i will then be charged capital gains tax.



my question is when would i pay capital gains tax from, when i bought the property at

£70000 or from when i rented out the property at 140000, So far the main increse in value is while it is my main residence.


If i am way off the mark could you point me in the right direction

thanks :confused:

[Grange]

From 70,000. But the gain would be apportioned over the qualifying and non-qualifying periods.

So if the property never goes up in value - or even goes down - you could end up paying some CGT on the gain that you have already gained.

[cris2fer]

Thanks for the reply GRANGE.


Just to be clear, i can rent the property out for UP TO 3 years and sell it

before the end of the 3rd year then there will be no CGT. However after 3

years i would have to pay CGT and the gain would be apportioned over the

qualifying and non-qualifying periods.

[Tax Accountant]

You have owned the property for 3 Years. If you rent it for a further 3 years, you will have owned the property for 6 years and all 6 years will be exempt. There will be no CGT liability.

Suppose you let for 5 years. You will have owned ot for 8 years. Exempt period will be 6 years and chargeable period will be 2 years.

The gain from beginning to end is then reduced by exempt period of 6/8ths, leaving only 2/8ths chargeable gains. However, this will then be reduced by lettings relief of upto £40,000. If any chargeable gains still remains, you will reduce this by non-business asset taper relief which is 5% after 3 years ownership and increasing by 5% for every further year until you reach a maximum of 40% after 10 years of ownership since 5 April 1998. If any gain still remains, you can reduce this by your annual exemption which is £8,500 this year.

To conclude, I would not worry about CGT if you wish to retain the property for longer than the 3 years after moving out. I would say that generally you can retain it a lot longer than the 3 years after moving out and still not pay any CGT.

Ramnik

[cris2fer]

KARONGO thanks for the reply :)

[Tax Accountant]

KARONGO thanks for the reply :)

You are welcome.

Ramnik

[jayjaykay100]

Hi,

You guys sound pretty well informed, so if I could ask your advice. I bought a property in 2001 for £90k in the Isle of Wight and rented it out from day one. I was renting myself in London so the the Isle of Wight property was my only property; I did buy the property on the Isle of Wight with the intention of working from home and living in it myself but that never came off so had to keep renting in London and had to have tennants in the Isle of Wight property to cover the mortgage down there. In 2004 I took £20k of equity out of the Isle of Wight property to buy a home in Nottingham which I live in and have a joint mortgage with my girlfriend. The house on the Isle of Wight is now valued at £165k so I'm thinking of selling. Because it was my sole property and I intended to live in it but didn't will I attract CGT? I have read that you get 36 months to sell your first property after you have bought a second. I don't really want to be a landlord so would like to get my hands on the money tied up in the Isle of Wight house but at the same time do not want to pay CGT.... if I'm to pay CGT then I might as well keep it and retire there one day selling the house I live in now.

Thanks for any help or advice. :)

[Tax Accountant]

Hi,


I bought a property in 2001 for £90k in the Isle of Wight and rented it out from day one. I was renting myself in London so the the Isle of Wight property was my only property;The house on the Isle of Wight is now valued at £165k so I'm thinking of selling. Because it was my sole property and I intended to live in it but didn't will I attract CGT? I have read that you get 36 months to sell your first property after you have bought a second. Thanks for any help or advice. :)

I have edited out all the irrelevant bits from the above quote.

As you never ever lived in the IOW property as your only or main residence, you are not entitled to any reliefs and allowances associated with a private residence.

Therefore, you will be charged to CGT on gains less approx 10% reduction for taper relief and a further reduction of £8,500 for annual exemption. Therefore, you will be charged to CGT on approx £ 60,000 as the top slice of your income and gains in the year of disposal. I assume a lot of this will be taxed at 40%. At a rough guess, your CGT bill could be approx £20,000.

There is a possibility that all or most of your CGT could be wiped off if you obtain vacant possession of the property and use it as your holiday home prior to selling it. You will need to obtain professional advice and comply with certain conditions to be able to do this successfully.

Ramnik

[jayjaykay100]

Thanks Karongo,

I appreciate your help you are an asset to this forum.



Regards
Jay

[Tax Accountant]

You are welcome as well. But please don't hijack someone else's thread.

Ramnik

[cris2fer]

While i lived in the above mentioned property i did a major refurbishment and basically gutted the house, replacing everything, all plumbing, boilers, wiring, new plastering etc. I also did a loft conversion and added 3 extra rooms.
My question is, when i sell the house at some point in the future, what can i offset against CGT and at what point would it be included in the calculations
eg ppr relief, lettings relief, taper relief, annual exemption do i then take off this expenditure

Thanks

[Tax Accountant]

While i lived in the above mentioned property i did a major refurbishment and basically gutted the house, replacing everything, all plumbing, boilers, wiring, new plastering etc. I also did a loft conversion and added 3 extra rooms.
My question is, when i sell the house at some point in the future, what can i offset against CGT and at what point would it be included in the calculations
eg ppr relief, lettings relief, taper relief, annual exemption do i then take off this expenditure

Thanks

It appears that all refurbishment and renovation expenditure is improvement and therefore allowable as a deduction in the calculation of CGT.

Original cost is increased by any capital expenditure. Therefore, it is included in arriving at the gross gain. You then deduct PPR relief. Remaining gain is reduced by lettings relief. Balance is then reduced by taper relief and finally the annual exemption.

You should obtain professional advice before proceeding to act on the basis of this advice.

Ramnik

[cris2fer]

Its not allways easy to read through all the legal stuff (and understand it)
so thanks again Karongo :)

[Tax Accountant]

Its not allways easy to read through all the legal stuff (and understand it)
so thanks again Karongo :)

You are welcome.

Generally, it helps if querists give details of date and cost of purchase, dates of use as own residence and dates of use as letting etc, and expected date of sale and sale value.

Ramnik