Capital Gains Tax - need a straight answer

[HelloShitty]

I am going potty with all the different information I'm getting - all anecdotal up to now, so I'm looking for someone who actually knows the answer!
I moved into DP's house 4.5 years ago and rented my own house out up until August 2010. It's been empty since then, had a bit of work done on it, and am now looking to put it on the market. Mortgage is all paid off.
HMRC website is a bit ambiguous (you might have to pay CGT if...) I suspect that I'll have to pay it from reading what's on there, but friends in similar positions have said they haven't (and others have said they have - aargh!) Are they fooling themselves and in for a big bill in the future? Any tax specialists on here? Or am I going to have to (eek) ring the tax office?

My tax advisor told me I would only pay CGT on profit made over and above the initial price based on the rise, if any, above the initial value from the date rental started. So for me as the house was worth less than i initially paid when I started renting and still is there would be no CTG.

If the house value has risen since initial purchase I was advised to have 3 sale valuations, including a building society one , just prior to renting so the profit from purchase to renting period would be CTG free.

I hope some of that makes sense!!!

You have annual allowances which are likely to outweigh any capital gain liability in that period and first 3 years are exempt iirc if it was your prinicipal residence before that.

You won't pay CGT on the proportion of the time that you lived in it. In addition, since you lived in it at some point, the final 3 years are treated as though you lived in it even if you didn't. So to put some figures on it:

Say you bought it for £50,000 10 years ago
You sell it for £200,000 now
So you have 5.5 years living in it, and 4.5 years not living in it. Of those 4.5 years, the last 3 are treated as though you did live in it for tax purposes - leaving 1.5 years of the 10 to pay tax on.

So you would pay capital gains tax on 1.5/10 of the gain or 15% of it.

You'd take off any sales fees (e.g. estate agent fees) and also any capital improvements - e.g. if you spent £15,000 on an extension, off the gain itself:

Calculation of gain:
Sales price £200,000
Estate agent fees £(2,000)
Purchase price £(50,000)
Extension cost £(15,000)

This would leave you with a gain of £133,000 (calculated as 200,000 - 2,000 - 50,000 - 15,000. Obviously if you didn't do extensions etc just miss out that last figure. You can't include repairs/painting etc)

£133,000 x 15% = £19,950

You can then take off that the tax-free Capital Gain allowance for the year - for 2011-12 this is £10,600. So 19,950 - 10,600 = 9,350. You then pay CGT at the appropriate % on this - 18% if you're a lower rate taxpayer, 28% if a higher rate (40%) taxpayer. I'm not sure of the rules if the taxable gain takes you over the threshold for earnings....would need to check.

Should have added:

18% if lower rate taxpayer = £1,683
28% if higher rate taxpayer = £2,618

If when you do the sums, your profit is below the tax-free capital gains allowance, then unless you sell any other things at a profit that year (shares etc) then you won't pay any tax.

Yes you are exempt from CGT on the gain that took place during the time you lived there and the last 3 years of ownership.

This would leave you with a gap of 1.5 years - you could be liable for CGT on the gain in that 1.5 years.

You work out the gain in that 1.5 years by adding up the total gain since you bought and dividing that gain equally over all the years.

However what nobody here has mentioned is that there is also an exemption for the gain during any period during which the property was rented out. This is called "letting relief" I think. So that relief would cover the 1.5 years as well. However there is a cap on the letting relief. I think it is £40,000 but can't remember.

So I think you will be ok. No CGT. Unless it's a very valuable property and/or has gained value massively - in which case your gains might fall above the cap that I mentioned.

but I am sooo not a tax adviser. You do need to speak to HMRC to be sure!

Thanks so much everyone (esp pootlebug for the detail). I won't say it's all clear - maths is definitely not my strong point, but I am feeling slightly more reassured that I know now what I have to do. I was envisaging having to pay out thousands, which we really can't afford. It's so hard getting proper info off anyone - knew I should have just posted here first. Thanks again.

Minipie - no, not a very valuable property. However, I bought it very cheaply and I expect the gain to be about £100,000. It would have reached that value before I started letting it though. Prices in my area have dropped quite a lot since I moved out, which sounds like it will work in my favour if I'm reading your advice correctly.

Official version from HMRC.

Sorry, I see you have looked at HMRC website already.

I do think that the valuation advice is wrong (if anyone can link to details of this??), but the other advice is spot on.

Gain = sales price less selling costs - purchase price + purchase costs (stamp duty. legal fees) + improvement (not repair) costs.

Apportion gain over period property owned - principal private residence (PPR) relief for time you occupied the property plus the last 3 years.

less: Lettings relief, at the lower of

• amount of the gain
• £40,000
• amount of PPR already given

less: annual exemption

remaining amount taxed at your marginal tax rate.

This page discusses the valuation point.

Thank you for the link Auntiestablishment (love the name).

Interesting point, although not one that I have seen in practice, but very useful to be aware of. It would be interesting to know how many such cases the writer of that section was aware of, although as it is in Simons I suspect that it isn't just one case.

If you intend to venture down this route, I would ensure that the valuation was obtained at the date of first letting the flat (as obviously several years down the line it would be more difficult to get HMRC to agree to a retrospective valuation).
I would also be aware that you might not be able to argue the case successfully with HMRC and might end up having to take it to the Commissioners, or incur significant advisor costs before reaching agreement.

Hello

Sorry to piggy back of this thread but it is exactly (well almost) the same question I have.

I have tried to look at the info on the HMRC website but for some reason, I can never understand the info on their, so was wondering if anyone could help me with what I should be paying for CGT, PLEASE?

Here are my numbers:

Bought Leashold Flat in Spet 1999, £125000
Paid approx. £10000, to extend lease to 999 years and buy a share of freehold in approx. 2006.
Moved out of flat to rented accomodation in June 2003.
Rented my flat out in Sept 2003.
Sold my flat in March 2011 for £215000

Solicitors fees for sale approx £2500

Also,
I had a new boiler installed in January 2008 which cost £5000 and also
Paid towards the shared cost of repairing stone steps to the house, and my share of this came to approx. £4000 which was over and above monies in the Service Charge account for the management company that 'own' the whole house.

Can someone help with with my calculation?

I didn't move back into the flat but it was empty a few times in between lets and once it was empty for about 6 months, during which time I had it redecorated for approx £2000.

I was assuming that my CGT would be based on the difference between the Sale Price, Less the (purchase price and the cost of selling (so the solicitors fees and estate agent fees)

Many Thanks in advance for any help you can give me. Like I said the HMRC website is a minefield to me and even though I've read it a millipn times I wasn't aware of the Private Residence Relief or the Letting Relief doo-da's.

Sorry to be SO thick. I'm really not a silly person, excpet when it comes to tax.

Thank you again.

Oh and I also had the windows changed for double glazed units for £1500 in Jan 2008.

Hi - I had this issue - I paid an account to do my tax return that year - keep records of every thing you paid - I not sure all of the expenses you mentioned will be able to set against tax but some of them will be
I made a substantial gain but with setting against expenses, and the various reliefs didn't have to pay any CGT

Thanks An0thername

I have contacted my old accountant but haven't heard back and not sure if i will now. So hoping someone in the know on MN might be able to help me.

Anyone? Please?

notpicky - just seen this. There is a step-by-step guide on the HMRC website here

If you are doing a tax return online then it may do the calculation for you (not sure, never used it) - but you need to be sure you get the right numbers in all the boxes.