Main home becomes second home - capital gains tax?

[lastnightIwenttoManderley]

DH is starting a new job this summer and so we will be moving away from our current home. The interim plan is to rent out our house and rent somewhere in the new area before we commit to anything.

When we come to buy a house in the new area, there's a chance we may choose to keep our current home and continue to rent it out. Our house has gone up in value since we bought it by more than the CGT threshold already. My question is, if at some point we sell out current house, is the CGT worked out based on the value when we bought it? Or the value when it became our second home (i.e. this summer)? If so, should we get some formal valuations done?

I've tried looking on the HMRC website but seem to be skirting around the issue with nothing definitive so wondered if anyone here knew?

Hello,

I seem to remember that CGT is paid on the amount of money you receive. So this would be the price you get for selling the house.

Sorry, perhaps I didn't explain myself very well - we're trying to work out what baseline your gain is worked out on if you've lived in it before rather than it always being a second home or BTL.

You work out the gain for the whole period then time apportion so the period it was your main residence is exempt. Then you can apply other reliefs to the letting portion. The hmrc website is quite good for exemptions (last 3 years/letting a relief etc).

Sale price, minus the price you bought it for, divided by the number of years you owned it, minus all of the years you lived in it which are exempt. The last 3 years of ownership also used to be exempt but this is reducing to 18 months from 14/15.

So if you owned for 10 years and lived in it for seven, bought for 150k and sold for 300k, the sums would be:

profit 150k, divided by 10 years. 8.5 of those years exempt, so 1.5 years worth of gain (22.5k) taxable. Except you can deduct expenses, (eg the estate agent for selling) and if you're a couple you both have 11k of CTG allowance, so in this example you'd probably pay nothing. What you do pay is at 18% if you haven't used up all your basic rate tax allowance in that tax year, 28% on anything over that.

there may also be 40k of letting relief.

all these rules are subject to change so keep an eye on the situation.

there may also be 40k of letting relief
really?

haven't looked into this in a while as no longer relevant to me, but this figure was in there somewhere. Here's the page:

www.hmrc.gov.uk/cgt/property/sell-own-home.htm

Thanks everyone, I'd got the sections about the various relief amounts but the pro-rata info is the bit I couldn't quite get to. Sounds like we can just sit tight then, I didn't want to get several years down the line and find out we could have had a formal valuation now to act as a benchmark.

It used to be £40k per owner letting relief