Capital Gains Tax - Can anyone help?

[Mistymoo]

OK here goes.

We bought our council house and after three years we bought another property which we now live in and we rent out the other house.

We are now thinking of selling the first house that we rent out. Do we have to pay this tax? If so, why? I don't know much about these things so simple answers please!

Have a look at some of \link{http://www.hmrc.gov.uk/leaflets/c4.htm\these} leaflets produced by the Inland Revenue.

In simple terms, you have to pay cap gains tax on any profit you make on the sale of a property, but there is an exemption for your primary residence, i.e. the house you live in.

However, there is a time period, I think it's three years, within which you can sell the first property and not have to pay cap gains, how long ago did you buy the second house?

Do you do your own tax returns, I rent a property out and am about to get my accountant to do my return as I don't know how complicated it is to account for rental income (probably not very, but I want to be on the safe side). If you have an accountant, this is something you should discuss with him/her, and to be honest, for something like cap gains I would go and see and accountant regardless.

You get relief from capital gains tax when you sell your principal private residence (PPR). However even though the council house will not be your PPR at the time of its disposal, provided that you are selling it within 36 months of it ceasing to be your PPR (ie moving into your 2nd house) then any gain on disposal will still be 100% exempt.

If this is not the case then much of the gain should still be exempt - the part of the gain that can be time apportioned to the period when it was your PPR will still be exempt as will the last 36 months.

Appreciate the above probably sounds a bit garbled and complicated but am rushing now and ds about to fall out of his high-chair!

I think the time period is 5 years and there is also a tax free allowance that you are allowed to make on your house which is announced by the chancellor every year. Tribpot is right though the person to sort it out for you is an accountant, alternatively when I sold my second home I rang the Inland Revenue explained my situation and I have to say they could not have been more helpful - and it was free!!

No, it's definitely the last 36 months that are exempt (as is the whole gain if you sell within 36 months of it ceasing to be your principal private residence).

Everyone has an annual exemption from capital gains tax - for 2005/06 it was £8,500. So you can make capital gains up to this amount without paying tax. But hopefully your house sale won't be liable to capital gains tax in the first place!

I stand corrected on that Roobie it was a while ago for me :) but it's worth calling them as I found out that even though I was over the allowed time and made over the annual limit I was still exempt from CGT

You also get a reduction for the period you rented out the house outside of the last 36months before taking out the CGT allownace.

You need an accountant to make the most of your options.

Thanks all.

I think I will have to leave dh to sort it out as I really don't understand it all.