Capital gains on rental property

[ClaireandTed]

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!

Transfers between husband and wife are exempt and the transferee acquires the base cost of the transferor, so OPs half share is half of her husbands base cost, i.e. half what he paid for it, not half the value at date of transfer.

Pre 2020 the rules were more favourable.

My understanding is that you take the period it has been rented out and work out that period of time as a percentage of the total time you have owned the property. Say you own the property for 10 years and rent out for 5, that is 50%. You then work out the capital gain for the total time, say it is £100,000, CGT on residential is 25%, so £25,000 x 50%, £12,500 CGT.

amp.theguardian.com/money/2020/sep/07/rented-out-home-how-much-cgt-price

The 30 days to pay the capital gain has now been increased to 60 days.

Capital Gains Tax is 18% for basic rate tax payers or 28% for higher rate tax payers.

An interesting read on the updated rules for CGT!
Reading further comments with interest

No it’s not.

Sorry, I mean the whole rebasing thing; quote fail.

It’s never been the case that H&w disposals are rebased.

I know it’s not that now, but I wasn’t aware it ever has been that way. I couldn’t find any record of it but two of you have said it so I was interested as to when this was so I could see if I could find it. I’ll ask an older tax person, see if they’ve heard of it.

It's been no gain/no loss between married couples forever I think.

I believe so, I am interested in this idea you used to be able to use the market value of a property on the date you came to rent the property out, as the base cost when you sell. I have never heard of it and the nerd in me wants to read about it but I can’t find anything about it other than people asking and being told no.

Thanks all, I really appreciate the help. So I guess we would need to base it on the original purchase price in 2005. It's going to be a LOT when we eventually come to sell! I'm a lower rate tax payer so there's that at least. And obviously we are lucky in the first place to have been able to do it. It meant we settled for a much cheaper second house but we thought it was worth doing that and renting out the first. I currently rent it to a friend at way below market value 🫣 because rents are so ridiculous. However with mortgages going up once the term comes to an end, we may have to pass some of the increase on sadly.

The devil is in the detail.

I’ll see if I can find the information. I know even my own accountant initially informed me that I would have no CGT to pay because there had been no increase in value between me moving out and eventually selling it. It was only when I queried because I’d read something different that she investigated and confirmed that (unfortunately) I was right. I’ll see if I can find the info she was using.

If you have owned a home for a long time, say a family home for 20 years, and retire and decide to rent it out for a couple of years while you go travelling, the CGT burden for the BTL period would be very low.

@ChilliBandit
Apologies my information was very outdated, the last time I sold a rental property was many years ago. Having thoroughly researched current CGT rules i can see things have completely changed.
I currently have a sale I am hoping to get exchanged before 5 April in order to utilise the 12,300 allowance.
I can recall my accountant saying he would argue the case with the revenue that the majority of the increase in value occurred during the 6 weeks we lived in the property and his proposal was accepted with relevant receipts a before and after valuations.
Things are now very much set in stone although you can pre agree a valuation estimate with the revenue before submitting your CGT form which is helpful.

So I guess it depends if you were married at the time or not?

Definitely ask an accountant. Terrifying amount of inaccurate advice above. And don’t forget to report and pay the CGT within 60 days of completion (but report gain in your TR based on date of exchange).

You don’t need to report within 60 days if you make a loss btw or the gain is within your annual exemption (although this is more and more unlikely in coming years, thanks to Rishi).

@NeedingCoffee makes an excellent point. Your base coat valuation will depend on your date of marriage . Were you married when your husband transferred the 50% to you. If so your base cost is the same as his , the original purchase price.

Thanks all yes we married the year before.

I will definitely seek professional advice whatever happens as it does sound very complex, thanks everyone.

We're in a similar situation.

Bought our old house in 1999 for £72000.
2 extensions later was on the market for £217000 at the 2008 crash.
We had to move for work so rented it out and now we'll be lucky to walk away with the equity from when we moved house.

We've rented to a friend too and kept the rent low and put in new boiler etc. She's in the process of buying somewhere so we've a lot of thinking to do!