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Capital Gains Tax on Sale of Property held as main residence and investment

(20 Posts)

I'm thinking of selling my old flat that I kept as an investment property but don't understand the rules on capital gains tax.

I am pretty sure that the CGT rules have changed since I last looked into this. For the sake of a discussion lets say it cost £100,000 to buy and is now worth £260,000 and I have owned it for 18 years during which I lived in it for 6 years and held as an investment for 12 years. Can anyone please tell me how I would calculate the gain? Thanks very much.

specialsubject Fri 22-May-15 10:11:46

the thing you need to investigate is something called private residence relief

www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief

what it means is that the tax relief on CGT is a ratio of the time you lived in it compared to the total time you owned it. So if you always lived in it, the relief is 100% and you pay no CGT, as you don't when you sell your own place.

you can treat the last 18 months of ownership as if you lived there.

the sum is period of occupation (including those 18 months) divided by overall period of ownership. So it is 7.5 divided by 12, or 0.625. Multiply that by your gain of £160k and the sum eligible for CGT is £100k. You'll pay 28% on that, less your £11.1k CGT allowance, so I make the bill just under £25k

do check with a grown-up.

specialsubject Fri 22-May-15 10:12:54

...especially one that can read properly! You've owned it for 18 years, so the actual bill is £15.5k.

oops.

ClarasZoo Fri 22-May-15 12:35:48

I think you take the allowance off the £100k so the bill is 28% of £89,000 or so. You don't take the allowance off the "tax" only.
Dunno though.

ChipsAndEgg Fri 22-May-15 13:01:03

specialsubject is basically right, but since it has also been your residence at some point then you can also use Private lettings relief to reduce your bill further.

CGT allowance reduces your gain and then tax is due on the balance.

finding it very difficult to follow this

Do you know if you pay an amount to extend the lease (which obviously increases the value of property) if this gets added onto acquisition price - logically it should (as you can't take it off as an allowance against property income) but I was not sure?

Thank you.

Mon 25-May-15 19:51:41

You can talk this through with the Inland Revenue but just to clarify:

- you last lived in the property 12 years ago? Have you owned another property since then? If yes, I don't believe private residence relief applies as per specialsubject's link "Any individual is entitled to the relief on any gain arising on the disposal of his or her only or main residence."

Ignoring that consideration for now, your capital gain is 160K. In this tax year, £11,100 is tax free, leaving £148,900.

How much you pay then depends on how much you earn. When my DH sold a house with a similar gain recently, his income was (and is) below the Personal Allowance threshold of £10,800, meaning he pays no income tax. That meant he could have 30 grand taxed at 18% and the rest taxed at 28%, because the threshold for the higher rate of tax is £31K.

On the lease extension question I don't know. All in all I would suggest you spend an hour with an accountant and talk this through to make sure you've got it all clear in your mind. Money well spent to make sure you pay the right amount of tax on a sizeable gain.

yes I have - I have bought and sold several properties since then which have been the family home.

Has the thing where you used to get a minimum of £40,00 off any gain gone now? I can't seem to see reference to it now.

Thanks.

LotusLight Mon 25-May-15 20:27:35

All capital (not income) costs can be deducted too. I think that includes costs of lawyer and estate agent on the purchase and possibly stamp duty or may be not.

The 18 and 28% is right. If you are a 40% tax payer then it is 28% of the gain. There used to be allowance for information - indexation allowance but that was abolished with CGT rate came down from 40% to 28%.

I believe as people have said above that it is a straight line as it were apportioning so even if 100% of the gain happened in the years it was your residence HMRC very unfairly in my view ignore than and pretend the gains were made equally over the whole time.

If it is in joint names you and the other owners get your £10k- CGT annual allowance each. I think it would be worth spending £200 with a solicitor or accountant to get some advice on how to minimise the CGT due.

LMLytton Mon 25-May-15 20:31:58

Lettings relief is the £40k deduction, but it's a maximum, not a minimum.

specialsubject Mon 25-May-15 20:36:36

more complex than I knew, so just making notes here. The £40k thing is still there but as others note, you may not be eligible.

Mon 25-May-15 20:49:45

Yes, Lotus is right, some costs can also be deducted - I simplified the example to get across the (to me) baffling bit about how much gets taxed at each rate depending on how much of your lower rate income tax band you have left. I found this bit mystifying even though we benefited from it.

The HMRC site makes a reasonable stab at explaining this very complex subject but it could do with some worked examples (which do exist on the site where you file your tax return) for the simple cases of employed people disposing of extra property, which seems to be by far the commonest example we see on MN.

LotusLight Mon 25-May-15 20:53:50

www.property-tax-portal.co.uk/taxquestion49.shtml I'd never heard for the £40k thing until tonight.

So £160k is the maximum gain at 28% less allowances and but less all these other things including acquisition costs and other capital costs too like spending on a major improvement if it were a capital not an income expense.

Money on a lease extension sounds like a capital cost to me to be deducted.

We sold two buy to let flats at a loss and have rolled up capital losses and as I never make capital gains never been able to use the losses. Obviously the worst property investor in the UK.

Mon 25-May-15 20:59:14

I wanted to sell another property that would make a loss, so as to offset the gain, but unfortunately we wouldn't have been able to get it sold in time and you can't apply losses from a future year to a gain in the past. Bahhh.

LotusLight Mon 25-May-15 21:35:04

I think that's right although you can carry losses forward for a period.

With shares some people bed and breakfast - sell one day to realise a loss and buy again.Not quite a easy with property given stamp duty and other costs

caroldecker Mon 25-May-15 21:36:05

The lease extension is definately added to the purchase price.

whooshbangprettycolours Wed 27-May-15 11:54:35

lotuslight bed and breakfasting is now illegal!

caroldecker Wed 27-May-15 19:16:52

Bed and breakfasting is not illegal, just not as useful as previously.

whooshbangprettycolours Tue 02-Jun-15 11:00:29

You cannot repurchase the same shares and claim any advantage, if you do you are breaking the law.

You can:

bed and isa
bed and switch
bed and wait 30 days

you cannot bed a breakfast.

caroldecker Tue 02-Jun-15 18:18:04

Agreed, but you can re-balance your portfolio annually to use your annual exemption and the 30 day rule rarely makes much difference.

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