Capital Gains Tax confusion(12 Posts)
I bought a flat in 2004 for £122k. I lived in it until 2009 and then rented it out from 2009 - 2015. It is now worth approx £210k. For 3 years of this time I rented a property with DP ( we are not married) and then 3.5 years ago we bought a property together. So 5 years living in it, 6 years renting it out and 3.5 years owning another house. Bought for £122k, now worth approx £210k
My tenants are now moving out and I'm considering selling but need to understand CGT. Would me moving back in for a while make any difference to what I'd be liable for? Also, this tax year I am in the higher bracket but as I am now a SAHM doing occasional freelance work I anticipate that I will be in lower band in 2015/16 tax year. Would this have any bearing on Capital Gains Tax payments?
I've tried to look up information but am still confused! Any advice gratefully received and if I need to speak to a 'professional' what type of person is it I need to speak to?
I'd phone HMRC for advice on the rules as they are complicated. The amount of tax you pay has nothing to do with your income tax so what you earn this year won't make a difference. It is a tax on the gain on the investment.
The position certainly used to be that the property had to be your primary residence in order to be exempt from CGT. That might have changed.
If you lived there you get allowances for that period. For example, the final 18 months (was 3,years but changed about a year ago I think) of ownership counts as it being your primary residence. So, you bought at £122 and will sell at £210 making a £88 profit. You've owned it for 11 years so that means a n average rise of £8 pa. You lived there for four years plus you get an extra 1.5 years so that means £44 is exempt meaning £44 is potentially taxable. However,as you lived there you also get (or certainly did when my husband sold his flat two years ago) an extra £40 allowance meaning only £4 is taxable which would be well within your annual capital gains allowance.
Of couse, you would also deduct expenses such as estate agency and solicitor fees so you probably wouldn't be left with any profit once you'd deducted the £40k. An accountant will make the cgt disappear.
no guarantees on my understanding of this, but a few thoughts:
- unusually, don't get married until this is sorted. As an unmarried couple you can have one primary residence each.
-...but you REALLY need to live there. That means bills and post going there, registered with local GP - all the things you do when you live somewhere. The actual time you live there and the evidence needed is not determined but if the revenue decide to investigate, it is as well to be real.
- the amount of CGT you pay depends on your total income for the year. If you make a big enough gain you automatically go into the higher CGT bracket.
Apologies, you lived there for five years, not four, bringing the exempt amount up to £52k and meaning the subsequent £36k is entirely covered by the £40k allowance.
my understanding is that if you move back in, you are still subject to CGT for the years (less 18 months) that you were not living there.
so you work out the profit less x/y percent of the profit x being number of years you did live there (minus 18 months) divided by the total number of years property was owned in total. Less any other lettings relief .
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