Capital gains tax question on a house (my only one) that I used to live in but now rent out

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Apologies if this has been done before... I've done a search on MN but can't find the same scenario Also looked on th Revenue website but can't quite find the answer.

I bought my house in 2003.
I lived it in for a few years.
Then moved abroad so rented it out.
Then moved back to the UK but never moved back into my house, I've rented it out ever since and I live in rented property myself. I don't own any other houses. I don't intend to ever move back into the house as it's too small for my family.

Now considering selling it so I can buy another house to live in.

Will I have to pay capital gains tax on the profit ?

Thanks in advance.

I think you need to inform the Inland Revenue that the house is your principal private residence. This should not be a problem as even though the house is currently let you do not own another property and are renting yourself.

You should not be liable to capital gains tax .

Thanks for that. I am pretty sure someone told me exactly the same about five years ago but when I looked on the HMRC website last night it didn't seem so clear cut. Thank you.

I'd be very surprised if you could claim that a house you are not living in is your principal private residence. The HMRC factsheet states that "Any individual is entitled to the relief on any gain arising on the disposal of his or her only or main residence."

You don't reside there. It's not your 'main home'. And HMRC presumably know this because you've been filing tax returns to declare the income you've been getting from renting it out.

I would give HMRC a call and ask so you know for sure.

In fact this is a better page of info:

"When you sell or dispose of your own home you won't have to pay any Capital Gains Tax if you satisfy two conditions. For the whole time you've owned it both the following must apply:

• it's been your only home or main residence
• you have used it as your home and nothing else"

You might be entitled to Letting Relief but my reading of this page is that only applies if you continued to live in the property whilst renting part of it out.

You may have to pay cgt. You will.not have to pay for the period you lived there nor for the last 3 years (although this is soon to be cut to 18months) there is also letting relief that can reduce the chargeable gain for the rented period & you have a separate cgt allowance against which you can offset part of the gain. The fact you only own one home is irrevelerant you can not elect a home in.which.you do not live to be your principal private residence.

Not true, tribpot. The OP is entitled to letting relief as he/she used to live in the house. If you had moved in after coming back from abroad then you'd also get more principal private residence relief (PPRR) but I'm assuming you'd rather sell and buy a new house than move back into the old one for awhile?

The basic logic is: you get PPRR for every month you lived in the house. This proportion is exempt. You also get PPRR for last three years of ownership, regardless of whether you lived in the house. This period will shorten to 18 months from April 2014 so if you haven't sold by then only the last 18 months get an exemption.
You get letting relief for the property for the period in the middle where it was let. But the amount of letting relief is the lowest of: the PPRR you're due; £40,000 or the proportion of the gain applicable to the letting relief period.

Finally, you only pay CGT if you have a gain (although on properties bought in 2003 it's likely) and even if some of the gain is not covered by PPRR or letting relief you will also get to deduct about £11,000 of annual exemption. So even if PPRR and letting relief don't take care of all your gain, you may not have any CGT to pay.

Isn't letting relief only due on the portion of the house not let though? I.e. zero in this case?

Listen to RicStar & riksti - their posts cover the situation v well.
What you now need are dates and figures to work out your position.

Tribpot - no, I'm guessing it's the HMRC website responsible for the confusion as the example there refers to the more complex case of letting part of the house, not the simple situation of living in the whole house and then letting it.

HMRC helpsheet 283 gives a more accurate picture. OP can have a look at example 9, which should cover her/his situation. Here: www.hmrc.gov.uk/helpsheets/hs283.pdf

Thanks for all your replies. I've got the dates and figures and I will call the Revenue tomorrow. The house will have increased in value by about 50k I think. Maybe the annual exemption will cover it. I certainly wasn't aware of the April 2014 deadline. I think my tenant's current contract runs until then.

riksti yes it's a tiny house and far away from my DD's school so I won't be able to move back there but I do want to sell it I think to fund a house purchase here as selling it is the only way I will be able to afford the kind of property I want.

Will call the revenue and get armed with the facts and see what makes sense. Thank you.

X post riksti will read fact sheet now. I didn't find this one last night!

I bought my house for 138k and I think it's now worth about 190.

The change from 3yr to 18mo is v recent (Nov pre budget statement).

it isn't your principal private residence and it would be fraud to say so. The only way to turn it back into your PPR is to go and actually live there, registering on the electoral roll, getting post there, paying the bills. The time you need to do this for is not specified but six months should be deemed reasonable. (Not relevant though as you don't plan to do this)

and yes, there was a stealth change in the budget reducing the relief period by half. This comes in from April so you may just be able to get past it if you sell the place quickly.

your capital gain is the difference between the price you get now and what you bought it for, less:

• your 10.9k CGT relief
• 40k lettings relief
• the gain in the last 18 months
• costs of the sale (agents fees)

you then pay 28% (I think) tax on the gain. There are two rates but they work on your total income for the year, so unless you have no other income you won't get the lower rate (another sneaky)

do speak to the revenue though as it will be fun to work out.

if it is currently tenanted, you either sell it to investors only, or give notice to the tenants, sell it empty and of course have no income until it sells. However you cannot change the tenancy agreement, so if your tenants are in for another year (say) you cannot ask them to leave, the house has to be sold tenanted and the new owner becomes their new landlord.

Can't believe how incredibly complicated it is! Yes have been completely transparent with the Revenue all along. I will call them tomorrow argh I find it so incredibly painful every single time I call them, and my tax situation in general isn't even that complicated! and report back!

So this means that if someone moves area ,say for a new job and cannot sell their property so rents it out and rents elsewhere they are not only liable for tax on the rental income (which does seem fair) but also liable for CGT on the only property they own(which doesn't seem so fair)

I imagine quite a few people will be surprised by this as the economic downturn, difficulties selling properties and falling house prices have left many people with no other option.

Well, there's no CGT if the property value has fallen compared to purchase price - CGT is payable on the gain not the proceeds.

And letting relief is available as explained above, so if you've lived in the house for 10 years and rent it for another five before selling then it's unlikely any CGT is payable (unless the gain is very big). I would expect most people to be able to sell their house in 5 years.

OP - you don't need to contact HMRC until you've sold the house. And since you're already receiving rental income I'm assuming you're doing a tax return and therefore can just add the gain details on your return when you come to do the one for the year you sell in. Just saying that since HMRC's helpline is notoriously busy in January and you may struggle getting through.

apple - yes, that's right. Half-arsed economic policy, designed to tax foreign investors but will also catch just the people you mention. The reduction of the CGT-free period makes it worse.

Hi riksti thanks for all the tips. I do do a tax return yes (in fact just started the annual process of having forgot my username and password, trying to request a new one, realising I've not updated the Revenue with my latest address detail, having to change that which takes days before requesting new password.... But alas!)but I'm trying to figure out how much I've got to put towards a deposit on a new house and whether it makes sense to sell my house etc, or take equity out of this house and get another humongous this time mortgage, so I think I will probably give them a call. I haven't done the sums but just looking at the figures that specialsubject provides, then if my gain is "only" £50K then it should be a moot point anyway. Thanks to everyone.

I would be happy to do the calcs for you if you pm me.
I would need date of purchase and purchase price.
Dates you lived in the house (ie month? 2003 to mm yy).
Dates the house has been let or available for letting (mm yy to mm yy).
Anticipated sales price.

I'm not sure HMRC would run the figures for you anyway?

(I am an accountant and also had the same situation with my own house).

HMRC confirmed my calculations for me when I was working out my capital gains liability late last year. But yes, I wouldn't try and call them in January.

Hi ChasingSquirrels I sent you a pm. Thanks!

Chasing squirrels, I have a similar issue. If I pmed you would you mind having a quick look at my situation? Thanks vmuch.

Hello.
I have a similar issue and you seem to know what you are talking about. I bought a house when I moved in with my partner and rented it out. We separated 15 mnths back and I moved into the rental house. I am now considering moving back to my home town and wonder if I will have to pay Capital Gains Tax.

The thread is five years old @Sonlyme2 I would start a new one 😀

I sold a property that I had previously lived in, but then rented out for a number of years. As it wasn't my principle residence I did have to pay CGT on it, even though it was the only property I owned.