Capital Gains Tax - worried

[itstheyearzero]

Met DP a few years ago and we both owned our own houses. I fell pregnant so we decided to move in together. Luckily I managed to sell my house just before the property crash - lucky me. So I moved into DP's house and we quickly realsied that it was never going to work living there (new build house, open plan, big dog and baby = disaster). We tried to sell it but couldn't, nobody was interested as the recession was well underway by then. Anyway, we found a large house that was a reposession, a complete bargain, and managed to scrape the money together to buy it (with large interest only mortgage). Subsequently, we let DP'd house out to tenants. This was just over a year ago. Now I know we have 36 months to sell DP's house (now 24 months) before he is liable to capital gains tax. The thing is, he only paid £75k for it about 10 years ago, and it's now worth about £200k. The problem is I just don't think it will sell quickly, if at all. It's a gorgeous house, he has spent a lot of money on it, but it is tenanted and if we ask the tenants to move out and try and sell it, we will be seriously short of money without the rent coming in. My questions is, does anybody know how much (roughly) caputal gains tax would be if he doesnt manage to sell it within th specified time frame? I can't make head nor tail of the rules, and could do with somebody explaining it to me for my own sanity! Thanks

Once you move out of a house and begin to let it you have 3 years to sell it with no CGtax to pay.

You say you/he lived there for 10 years. If you sell it having owned it for say 17 years my understanding is that you get the 10+3 years tax free and pay tax on the remaining 4 years. This is calculated as:-

Sale price = £200
Less cost + capital improvements (eg extention work with receipts) = £75

Less CGT Allowance = £10k (approx)

Taxable gain = £115k

Taxable fraction = 4/17 * £115k

Profit to be taxed = £27k
At 28% (I think) = £7k tax to pay.

I think this is correct, your accountant or hMRC would be able to confirm.

I think I have taken the cgt allowance off too early. This should be done last of all prior to the 28% tax rate and would give a £5k tax bill.

I think I have taken the cgt allowance off too early. This should be done last of all prior to the 28% tax rate and would give a £5k tax bill.

Think there is also Lettings Relief which means you don't have to pay CGT on a house (which you used to live in) while it is let.

There is a cap on this - £40k of gain, or the amount of gain while you lived there, whichever is smaller.
Sounds like you may be within the £40k still (so no CGT) but won't be if the house increases a lot in next couple of years.

Again, do check with an accountant/HMRC.

Thanks, thats really helpful. I guess I was woried that we would have to pay 40% of profit, but it seems that's not the case thank God. Think we need to have a chat with an accountant as you said. We really want to pay off a big chunk of our new mortage with any profit, so hopefully we might still be able to do that. It's a bloody minefield!