capital gains tax?

[sniffy]

I live in a biggish house which I own outright. If am thinking of selling up in a couple of years and moving to a smaller one so I can give up work and look after my two kids ( I am a single parent). This may seem a really dumb question but can I keep all the profit from the sale of my house as money to live off? Or is it subject to tax of some sort?

Also , would it make a difference if I bought a small house now to rent out for a couple of years to move into further down the line when I sell the big one? I know any rental income would be taxable but would it make a difference to whether I could live off the profits of the first house when I eventually sold it if I had been owning two for a couple of years?
Many thanks if anyone can answer this.

I think that you would be ok with the profit made on the first house, as long as it hadn't been used to generate income - e.g. as a business premises, or to be let out. As I understand it you are 'allowed' to own one 'home' and any other properties are assets.

So, if you bought a second house, rented it out, and then moved into it, the increase in value of the first house would not be taxable, but if you came to sell the second house, then it might make a difference.

I'm no expert - I'm sure someone will correct me if I'm wrong, but that's the way I understand it.

You pay no CGT on your principal residence. So your house would be safe. If you bought another and moved into it, it would become your principal residence and so would then be safe when you sold it, as long as you lived in it for a qualifying period (I think this is a year or so)
In the meantime, remember that although your rental income will be taxable, you can offset any interest on mortgage payments, and other legitimate running costs and so reduce your tax bill.

I'll try and ask dh tonight- he's a tax and trusts lawyer. But from what I remember (before switching off during conversations)- you're fine if you're selling your principal residence- but if you own more than one house I think you have to have lived in it for a couple of years to qualify. I'll ask dh though.

This might help perhaps? A gain of up to £40,000 is exempt from CGT, when you sell a property that has been a main residence at some point, but has also specifically been let as residential accommodation.

Very rusty on CGT re houses BUT I think CGT on properties rented out goes like this:

There is an exempt proportion of the total period of ownership, which is calculated as (any period of owner occupation) + (up to four years during which the individual is prevented from living in the house because of its distance from place of work, provided they return to the house as main residence afterwards)+ (up to three years for any reason, provided the owner returns to house afterwards as main res) + (any absence through working abroad provided return to house afterwards as main res)+(the last three years of ownership provided it was your main residence previously).

Then exempt proportion/total period of ownership, is applied as a fraction to the sale proceeds less indexed cost (i.e. original cost uplifted by movement in RPI since bought).

THEN a residential lettings exemption is applied, reducing the gain by the lower of an amount equal to the part of the total gain which is exempt becasue of owner occupation, and £40,000.

Sorry I know its absolutely horrendous, but that's why people like me are paid to be tax consultants. I'd always advise people to seek advice (of course) - but the Inland revenue websites has a link to the IR manuals which should have a couple of worked examples in them. You would need the IR capital gains tax manual - or you could try a search for "private residences"

Just asked DH - he's a solictor and works in this area (UK law btw)

1. If you sell outright and buy another house, and it's your main place of residence that it isn't subject to any tax - this is the excemption to CGT.

2. Again no tax so long as you only have only one main place of residence; you can formally elect the main residence through the inland residence. However, if this is where you are actually living all the time you don't really need to.

I hope this makes sense!

Just to add - this applies to the bigger house when you sell it, not the one you are renting. I think I read your post right??? You are planning to rent the smaller house, then sell the big one and move into the smaller one? If so, what I said below is fine!

message withdrawn