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Original poster

Capital gains on rental property

47 replies

ClaireandTed · 02/02/2023 14:42

I can't seem to find the answer to this anywhere online, and am just speculating at the moment so wondered if anyone can help.

My husband bought a house in 2005 for £167,000 and we lived there until 2013.

At that point in 2013, we bought a new home and converted the old one to a buy to let mortgage, this time in both our names, based on its new valuation of £210,000. So effectively my husband resold the house to both himself and me and we turned it into a buy to let.

If we were to sell it, do we pay capital gains tax on the original cost of £167,000, or the cost at which it switched to rental ie £210,000.

If £167,000 how would we work out each of our contributions considering he owned it til 2013 and I only part owned it from 2013?

Thanks!

OP posts:
FenghuangHoyan · 02/02/2023 14:59

Hi.

You would not be liable for capital gains for the period when your husband was living there as his main residence. Usually, HMRC calculate the gain increase over the total period and pro-rata that increase over the period that it was rented out. However in this case, as long as you can prove that the valuation was a market value, then HMRC "should" take that as the starting point for any gains. Certainly you would not have to pay tax on the full gain from £167k as he was living there.

Do not forget that any work you did to prepare the house for renting out can be offset against the capital gains as can estate agents fees etc.

Source: Did the same thing myself (less the valuation in the middle) and was able to prove that the work I'd done in the house when I first moved in, less the time I lived in the house meant I owed no capital gains for the period I rented.

Ariela · 02/02/2023 15:04

You'll need to check this, but pretty sure that you each have a capital gains allowance. As it was your DH's main residence till he moved, there's no capital gain till after then, and as @FenghuangHoyan says, it's the gain on the then value till sold. I'd perhaps take advice from an accountant on this, as there are various things you can use to offset the gain.

Original poster
ClaireandTed · 02/02/2023 15:15

FenghuangHoyan · 02/02/2023 14:59

Hi.

You would not be liable for capital gains for the period when your husband was living there as his main residence. Usually, HMRC calculate the gain increase over the total period and pro-rata that increase over the period that it was rented out. However in this case, as long as you can prove that the valuation was a market value, then HMRC "should" take that as the starting point for any gains. Certainly you would not have to pay tax on the full gain from £167k as he was living there.

Do not forget that any work you did to prepare the house for renting out can be offset against the capital gains as can estate agents fees etc.

Source: Did the same thing myself (less the valuation in the middle) and was able to prove that the work I'd done in the house when I first moved in, less the time I lived in the house meant I owed no capital gains for the period I rented.

Brilliant thankyou. That's so helpful about the improvements - we did do a decent amount of work just before we moved out to get it ready.

I am pretty sure the bank sent a surveyor to double check out valuation when we converted to buy to let, my memory is poor but I will check.

Thanks so much.

OP posts:
Original poster
ClaireandTed · 02/02/2023 15:16

Ariela · 02/02/2023 15:04

You'll need to check this, but pretty sure that you each have a capital gains allowance. As it was your DH's main residence till he moved, there's no capital gain till after then, and as @FenghuangHoyan says, it's the gain on the then value till sold. I'd perhaps take advice from an accountant on this, as there are various things you can use to offset the gain.

Thanks!! That's very helpful. Yes if and when we sell I'll definitely take advice from an accountant. It's good to know we won't be liable from the original bought price!

OP posts:
SeasonFinale · 02/02/2023 15:16

As well as his period of residence there are other reliefs that may be applicable. I can't remember what they are off hand but was pleasantly surprised to find them. It was on the actual notes to that section of the tax return when I went to do it

ChilliBandit · 02/02/2023 15:25

The work you did in preparing the house for rental cannot be taken against the capital gain, unless you made capital improvements. It’s a bit of a grey area but these tend to be long term permanent changes that enhance the value of the property. If you just painted the house for example this would not count. You may have been able to be set against your rental income but you are likely out of time to make a claim.

It’s not clear if you actually own half of it, were the land registry deeds changed? Did you pay stamp duty at the time?

alwayscheery · 02/02/2023 15:29

I believe Your base cost is the value at day one of renting the property out.why date did your husband sell the property to you ? I.E. What date was the property first let out? and what was the value when transferred to you both , compared to the actual value at day one of letting as they may be different amounts,?

alwayscheery · 02/02/2023 15:31

There is a capital gains tax calculator on the HMRC site. Run the figures through the calculator.

ChilliBandit · 02/02/2023 15:46

The base cost is the cost on the day you bought it. I am a little confused about this sale to themselves part way through, it sounds like it was just a remortgage with more borrowings, unless the OPs husband gifted her half and she paid stamp duty on the value of any outstanding mortgage. HMRC won’t care about the value at the date of a remortgage.

hoochyhag · 02/02/2023 16:10

There you go

www.gov.uk/tax-sell-property/work-out-your-gain

Original poster
ClaireandTed · 02/02/2023 16:17

ChilliBandit · 02/02/2023 15:25

The work you did in preparing the house for rental cannot be taken against the capital gain, unless you made capital improvements. It’s a bit of a grey area but these tend to be long term permanent changes that enhance the value of the property. If you just painted the house for example this would not count. You may have been able to be set against your rental income but you are likely out of time to make a claim.

It’s not clear if you actually own half of it, were the land registry deeds changed? Did you pay stamp duty at the time?

Omg good question. Tbh my brain has gone blank and I can't remember, we did it all officially with financial advisor dealing with the lenders etc and obviously had a solicitor at the time for the new house purchase, so I need to dig out the files. It sounds crazy but my memory for this sort of thing is appalling as I have epilepsy.

Thanks! Will look into it.

OP posts:
Original poster
ClaireandTed · 02/02/2023 16:17

hoochyhag · 02/02/2023 16:10

Thankyou!

OP posts:
Original poster
ClaireandTed · 02/02/2023 16:18

ChilliBandit · 02/02/2023 15:46

The base cost is the cost on the day you bought it. I am a little confused about this sale to themselves part way through, it sounds like it was just a remortgage with more borrowings, unless the OPs husband gifted her half and she paid stamp duty on the value of any outstanding mortgage. HMRC won’t care about the value at the date of a remortgage.

Thanks I need to dig out all the paperwork, we had a solicitor at the time regarding the new house purchase and it was all done at the same time using the financial advisor so I need to get everything in front of me to make sure! Sounds crazy but my memory is absolutely appalling.

OP posts:
ChilliBandit · 02/02/2023 16:24

It’s fine, house buying is stressful at the best of times but it’s important to get that bit clear. Although may be a bit of an issue if you don’t actually own half and have been declaring half the rental profits on your tax return all this time.

Original poster
ClaireandTed · 02/02/2023 16:28

ChilliBandit · 02/02/2023 16:24

It’s fine, house buying is stressful at the best of times but it’s important to get that bit clear. Although may be a bit of an issue if you don’t actually own half and have been declaring half the rental profits on your tax return all this time.

Thanks I will make sure everything is sorted and above board for sure!

OP posts:
Original poster
ClaireandTed · 02/02/2023 17:48

alwayscheery · 02/02/2023 17:37

Thanks so much!

OP posts:
alwayscheery · 02/02/2023 19:02

The 9 months prior to sale are also
exempt from capital gains tax, run it through the HMRC cgt calculator.

alwayscheery · 02/02/2023 19:03

If you have carried out a renovation the value of the property on day one of letting is your base cost.

ChilliBandit · 02/02/2023 20:31

@alwayscheery - can you point me to the legislation/guidance of that please? I’ve never seen that.

HappyHolidai · 02/02/2023 21:02

Were you married all through the period 2005-2013 and did either of you live elsewhere in that period? (Relevant as a couple can only have one private residence between them at any one time for CGT).

It seems to be a slightly complicated situation exacerbated by the fact that you seem to be unclear on exactly what the facts are! I suggest you get an accountant or tax advisor to go through it all with you.

Original poster
ClaireandTed · 02/02/2023 21:22

Thanks all - I've checked and was put on the deeds as part of the process. We married in 2012. Thanks for everyone's help! It's unlikely we'll be selling soon anyway but I am speculating about future options regarding remortgaging etc and just wanted to know more about potential CGT.

OP posts:
Backy · 02/02/2023 21:31

i don’t know if this is relevant to you but just in case. The rules changed relatively recently regarding which valuation is used to calculate CGT. It has to be the value when you bought it, not the value of when you moved out. I sold a flat this year that I had lived in for X years and then let out for Y years. I had it professionally valued when it became a rental property but unfortunately this no longer has any relevance in calculating CGT. Which was a bloody shame as all the increase in value occurred whilst it was my main residence so I wouldn’t have had any CGT to pay.

I mention it just because a lot of people gave me advice about CGT and they hadn’t known the rules had very recently changed regarding the valuation so I had an unexpectedly large bill.

ChilliBandit · 02/02/2023 22:32

I really want to know when this change occurred because I have never heard of or seen a rebasing of a property because you started letting it. I have looked online but can’t see anything about it. I’d be interested to read about it.

alwayscheery · 03/02/2023 08:07

ChilliBandit · 02/02/2023 22:32

I really want to know when this change occurred because I have never heard of or seen a rebasing of a property because you started letting it. I have looked online but can’t see anything about it. I’d be interested to read about it.

As Backy has pointed out it seems legislation has changed. Apologies.
Ignore my point about base price for CGT being at day one of letting , it seems not to be the case.
Seems somewhat unfair that the value is calculated from day one as an owner occupier, receipts for works carried out might not be available.
Will your husbands base price be different to Yours presumably his 50% will
Be the original purchase price and
Yours will be at the date you acquired a 50% share?
Thoughts anyone?

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