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Original poster

Capital gains tax confusion on a second house!

27 replies

MrsHarryRamsden · 30/09/2013 15:22

hi, i'm sorry if this subject has been done to desth but i cant seem to work out a straight answer to our situation using HMRC website

i'll try to be brief...

dh and i bought house A in jan 2001
we bought another house B in april 2010 and remortgaged the first house A on a buy to let mortgage in order to help finance house B
we moved into house B in jun 2010 and let out house A at the same time

we sold house A in aug 2010 for £46.5 k more than we paid in 2001

will we be liable for capital gains tax? i understand there are all kinds of reliefs etc but have got myself in knots trying to apply then to our situation!

thanks in advance

OP posts:
LIZS · 30/09/2013 15:23

yes you will but there is an annual allowance which you can offset and I think it only is chargeable on the gain from the time it ceased to be your principal home.

schmalex · 30/09/2013 15:27

I have a feeling the three year rule would apply, but I am not an accountant. Can you ring the HMRC helpline?

LIZS · 30/09/2013 15:53

You can claim Private Residence Relief for up to 3 years after you moved out , was it only a few months between then and the sale or did you mean Aug 2013 ? Probably best to speak to HMRC direct

Original poster
MrsHarryRamsden · 30/09/2013 16:10

sorry, i did mean august 2013, i cant be trusted to keep my dates right!

OP posts:
riksti · 30/09/2013 16:54

Did you both live in house A between Jan 2001 and Apr 2010 as your main residence?

If so, and if it was rented out between Apr 2010 and Aug 2010 then you have no CGT to pay.

riksti · 30/09/2013 17:00

By way of an explanation: Jan 2001-Apr 2010 - you lived in it and it qualifies as your main residence - you get main residence relief which means this proportion of gain is not taxable

Aug 2010-Aug 2013 - if house qualifies as your main residence at any point you will always get the last 36 months treated as if it was your main residence then as well (regardless of where you were living at the time.

If the house has been your main residence and has been let out and the letting period covers a gap between main residences (whether actual or deemed) then you can get what's called letting relief. So if you had tenants in house A between Apr 2010 and Aug 2010 you won't have any CGT to pay.

Original poster
MrsHarryRamsden · 30/09/2013 17:20

sorry, yes, we both lived in house A as our main residence between Jan 2001 and jun 2010.

we moved into house B in Jun 2010, a few months after we bought it as it needed work.

we let out house A between jun 2010 and aug 2013, when we sold it to the tenant, slightly over the 36 month time frame

thanks for helping me with this, i am getting myself in tangles as you can see!

OP posts:
riksti · 30/09/2013 17:31

That seems like letting relief covers the main residence relief shortfall so you should be OK.

specialsubject · 30/09/2013 20:58

you're fine. Only two months are outside the three year period and your CGT allowances will easily cover that, even if you are not eligible for lettings relief. (which you may not be as you didn't move back in)

you can also deduct expenses including cost of sale.

riksti · 30/09/2013 22:07

Specialsubject - no need to move back in to get letting relief. Only the deemed residence provisions have 'move back' requirement and they are irrelevant to the OP

Original poster
MrsHarryRamsden · 30/09/2013 22:58

so the general consensus is that we won't owe CGT? that is very very welcome news.

do i need to call HMRC to declare anything? we dont normally do a self assessment as we are salaried. the HMRC havent been in touch with us yet but i know they may be contacting owners/vendors of second homes so should i pre-empt their letter?

OP posts:
Original poster
MrsHarryRamsden · 30/09/2013 23:07

thanks to all for your advice btw Smile

OP posts:
riksti · 01/10/2013 06:42

It's unusual not to do tax returns if you were renting out a property. You had rental income so in theory you would've needed to declare it. Or did HMRC adjust your tax code for estimated income?

tribpot · 01/10/2013 06:47

Yes, not sure why you weren't doing a tax return to cover your rental income?

I think at this stage you do need to do a return to declare your capital gain, even if your tax bill ends up at zero. But you need the advice of a professional to be sure you have filed everything correctly.

LIZS · 01/10/2013 07:18

yes you should have done a tax return even if there was ultimately nothing to pay on the income.

Original poster
MrsHarryRamsden · 01/10/2013 07:48

ok, i didnt know this! is it possible to do this for the last three years retrospectively?

OP posts:
LIZS · 01/10/2013 08:00

You're ok for the past tax year to April 2013 as that hasn't got to be done until end of October by post or Jan online. Ring them up and say you need to register and could they advise you. There may be a fine for late submission but that might get waivered if you explain. Even if you are paye there may be more tax liability on other sources of income or if it puts you into the next income bracket.

riksti · 01/10/2013 08:16

HMRC have just announced a Let Property Campaign www.gov.uk/government/policies/reducing-tax-evasion-and-avoidance/supporting-pages/hmrc-campaigns (scroll down the page to find) designed for landlords like you who haven't reported their rental income. It's only just launched and not a lot of detail is available but based on past campaigns the penalties for non-disclosure should be lower than if you notify them without using the campaign disclosure facility

Original poster
MrsHarryRamsden · 01/10/2013 08:34

thanks all, will ring HMRC and get onto this today. our rent only just covered the mortgage so hopefully there isnt too much owed/penalties due.

OP posts:
Alwayscheerful · 01/10/2013 08:42

Owners of Buy to let properties with zero or minimal profits can submit their profits or losses via a statement in form of a letter to the inland revenue. The cost of processing Self assessment forms means the inland revenue will probably be happy to collect any tax due via your tax code. Talk to them.

Smellysmum · 03/10/2013 18:50

Only the interest element of your mortgage is an allowable deduction against the rental income though, not the whole amounts (unless its an interest only mortgage). So there may be tax to pay even if you haven't made a 'profit' in your eyes.

Original poster
MrsHarryRamsden · 06/10/2013 21:12

thanks so much to everyone who has given me advice here x

OP posts:
meditrina · 06/10/2013 21:17

When you remortgaged in 2010, the house would have been valued.

You will be liable for CGT on any rise between that valuation and the selling price.

riksti · 06/10/2013 21:19

Meditrina - that's not true. The advice above covers OP's potential exposure to CGT.

meditrina · 07/10/2013 07:20

That's because I think the advice above is wrong.

Lettings relief won't apply (they are not letting out part of their main residence whilst continuing to live in another part).

And when you own more than one property, you have only 2 years in which to nominate one property as your main residence (assuming you are living in both). If you live in only one and let the other, then your main residence is the one you live in.

I expect OP will have a CGT bill covering the time it ceased to be their main residence (as evidenced by change of mortgage and arrival of tenants).