Capital gains tax if I sell my house. Anyone any idea how much I'll have to pay?

[Runnerbean]

I bought a house 5 years ago then rented it out when I moved in with my then dp (now dh). It's increased in value by about £80,000. Letting it has been such a hassle I'm considering selling it but I wondered how much tax I'd have to pay. I've searched government websites but am none the wiser.
Anyone enlighten me?

I don't know the % for capital gains, but it matters how long you lived in the house. The proportion of the time since the purchase that you lived in the house affects the amount of capital gains due, from what I know.

Oh, here:

In 2005-06 net capital gains (after deduction of allowable losses) over £8,500 are charged at 20% when income and gains added together do not exceed the basic rate limit (£32,400 in 2005-06), and at 40% where they exceed that limit.

I think you can deduct the cost of improvements to the house, too. Unless you've already counted them against rental earnings?

But basically, if the house is up by £80,000, and, say, you lived in it for 1/4 of the time you owned it, you owe capital gains on $60,000. Your allowance is £8.5 (do you get it just for this year? Or for all the years in the middle? Not sure. Assume only this year's counts.), leaving £51.5, which you'd pay 40% on, which is a bit over £20K.

I'm making a bunch of assumptions there, though. I'd talk to an actual accountant.

I'm fairly sure that you can claim capital gains allowances for retrospective years, so long as you haven't used them elsewhere.

If you have lived in the house, the time you gain relating to the proprtion of time spent living in the house is exempt from CGT.

Also, providing you have lived in the house at some time, the last 3 years of ownership are tax exempt also, regardless of the fact that you did not live in it during those years.

Plus, providing that you have lived in the house at some time in the past and you have let the house on a formal basis you will also qualify for "letting relief" which will further reduce your capital gain.

If you sell in 2006/2007 you will have an annual tax free gains allowance of £8,800 but this you cannot use earlier years unused allowances.

Improvement costs (new bathroom, re-roofing, new windows, total rewiring/replumbing etc) can be deducted in arriving at a net gain value as they should not be deducted from rental income, only repairs and renewals can be deducted from that income.

A) Have you ever lived in the house ?
B) Did you declare the rental income to the Inland Revenue ? (Will be dodgy claiming letting relief if the renatl income was not properly declred and subject to tax)

depends on what you do with the money too

Sorry first sentence is garbage.

It should say

"If you have lived in the house the proportion of the gain relating to the time spent living in the house is exempt from CGT".

Is it true that if you live in the house for 6 months and are living in it at the time of sale as your primary residence, you don't incur CGT?

check out this link runnerbean \link{http://www.fool.co.uk/taxes/articles/cgt_property.htm\www.fool.co.uk/taxes/articles/cgt_property.htm}

it has worked examples of similar situations. I used it to calculate if we owed anything for last years tax return and the IR accepted the workings out and figures I came up with based on it. HTH.

Say you lived in it for a year then 4/5ths of the gain will be exempt as the year you lived in it and the last 3 years of ownership are exempt.

You are then only looking at a gain of £16,000, less your annual exemption of £8,800 gives £7,200 and assuming that you are not a higher rate tax payer, you'd pay 20% on that giving £1,440 tax payable but that is before considering any letting relief.

It's not looking so bad or is it ?

Piffle, what you do with the proceeds is usually only relevent if the asset is used for the purposes of a trade.

AA, what if you never made any money on the rental?

And what is rental relief?

We are looking at a slightly mucky situation as bought next door, rented it out for a few years, now knocking through. I'm thinking about legally moving next door, so house #1 is DH's house, house #2 is mine. So then, when we sell, CGT is only due on the proportion matching the years it was rented, iyswim. Not sure we actually ended up paying tax on it, though, as it was not a profitable rental, to put it politely.

Not heard of Rental Relief. Surely you can claim expenses etc against any rental income so unsure you could do so twice. NQC , I thought the 6 month thing had changed recently.

Well, I don't think we've been claiming renovation stuff against rental income. We've made such a big loss, anyway, it's risible.

So roughly:

Start with £80,000
Deduct e.g. £80000/5 (assuming you lived there for one year)
Deduct your allowance of £8,800
Deduct any improvement costs you may have incurred - e.g. new kitchen at £5000

= £50,200

Then you apply taper relief (e.g. if you have owned the property for at least 5 years you can deduct 15%)

£50,200 - £7530 = £42,670.

The amount left is called a chargeable gain and will be taxed as income tax. So if you are a higher rate tax payer it will all be taxed at 40% but if you do not work and have no other income you can apply your personal allowance & then it will be taxed at teh current income tax rates.

Assuming you are a higher rate tax payer (which you may not be!) you would pay

£42,670 x 40% = £17,068 in tax.

Looks like you will probably still make a reasonable profit

The only bit I am not sure about is the bit about how much you would deduct for the time you lived there. Give your local tax office a ring, they have advisers who can explain it to you.

HTH.

Not sure renovations/home improvements can be offset against rental income although maintenance costs, agency fees, insurance and mortgage interest can.

AA is the last 3 years not applicable because the OP lived there?

Sorry I may have confused things.

FrayedKnot No , the last three years are exempt if Runnerbean did live in the property at some time.

"Letting Relief" is a relief against capital gains only and is also only available if you have lived in the property at some time.

NotQuiteCockney Husband and wife can normally only have on U.K. "principle private residence" between them so your plan would fail I'm afraid. I also think you are getting confused with expenses deductible for taxable rental income purposes and the above mentioned "letting relief" available for capital gains tax purposes. If you are about to knock through you are not selling No 2 property anyway so no capital gains tax issues arise.

Whether or not you made any profit from renting the property, the increase in its value from when you bought it to when you sell it is subject to capital gains tax rules.

LIZS home improvements cannot be set off against rental income but Runnerbean is talking about the capital gains tax on selling the property which is entirely different.

Blu you would need to consider what happened between the 6 months when you lived in the house nad the time when yoou moved back in prior to the sale. You don't need to move back in and be living theree when you sell as providing you have lived there originally the last three years of ownership are exempt whether or not you live in it during those three years.

Hope that answers everyone.

If you rent out your primary residence because you work abroad (and are working abroad for the government) would you still have to pay Capital Gains Tax on it if you then come back to UK and sell it?

Does anyone know?

Thanks everyone!

I lived in the property less than a year. I haven't worked for just over 3 years, my husband has supported myself and our two dds. The rent just covers the mortgage and we've spent quite a lot on it, new boiler, oven, redecoration etc. It galls me that I have to pay a lump of money in tax! C'est la vie!!

I'd rather hang on to it and invest a bit more in improvements to increase it's rental value.

Thanks all anyway!

Mrs S we're in that position having returned alst summer after 4 eyasr out of UK and, as I understand it, you wouldn't necessarily be liable as long as it was once your principal private residence or you return to live there, but not sure what the minimum period is . See q8 \link{http://www.hmrc.gov.uk/cnr/faqs_capgains.htm#cg1\here} and the others above it, and the relevant leaflet it links to. It is pretty complex though.

btw I'm prepared to be corrected but understand we, at least, are no longer liable ( F used to work in CGT)