Capital gains tax question

[Littlepicklehead]

We are currently going through planning permission to try and extend our flat which will hopefully go through.

However our back up plan if we can't do it was to rent out the flat and then move into a rental property for a couple of years when it will become (hopefully) slightly easier to move house due to less childcare costs and more flexibility on where we can live (we've had a lot of difficulty trying to upsize due to the rapid rise in house prices, as Have many others I'm sure)

However I've just looked into it again and noticed the capital gains tax free period has been halved to 18 months.

Could anyone in the know explain how that would affect someone in our position? Would the CGT be payable on the rise in price from when we started letting to when we sold, or from the price when we bought? What tax relief would we be entitled to? I have looked on the HMRC website and I'm even more confused.

You calc the CGT based on total gain and apply a percentage of that gain to the time you were renting it out. So, if you lived there for 5 years and then rented it for 5 years, regardless of if the price increased in the latter 5 years, CGT would be payable on 50% of the gain. That's how I understand it anyway.

However, there are a few things that help you out:

1. 18 months allowance.
2. CGT allowance. If you Both own the flat, then you can disregard another £20k of gains
3. Property letting allowance of around £40k (IIRC) which is taken of the increase in value

Using the above 3 items, and depending on the value if your flat and the current gains you can likely rent it out for 2-4 years without having to pay any CGT.