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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15933
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I separated from my husband for few mths and decided to buy

Customer Question

I separated from my husband for few mths and decided to buy another house as renting was just as expensive. I was getting a court order to sell marital home but my husband unfortunately passed away in the meantime.I decided to pay off outstanding mortgage on marital home and keep mortgage on new home. I left marital home vacant for few mths as I wasnt sure if i was going to move back in or sell but decided to rent out until i felt more able to cope with the bereavement. I realise that I am liable for tax on rental income but am I now liable for cgt if I sell marital home even though I took out large mortgage fir my new home and should I not have repaid mortgage on marital home or used the equity from it to buy new home
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

How long have you been living away from the marital home? What are your intentions for each of the properties? Was the marital home jointly owned with your late husband? How long were you separated before your husband passed away? Did your separation extend over the end of the tax year on 5 April into another tax year?
Customer: replied 3 years ago.

I have been away for approx 11 mths. I left dec last year and he passed away in june this year.it wasnt a formal separation. He became an alcoholicand I was forced to leave but if he got better I would have gonebackbut unfortunately this didnt happen.we had jnt mortgage ie jntly owned. I have rented out property for 12 mths to give me breathing space until I decide w hat to do and this expires sep 14. Iwould hate t o pay cgt when I could have moved back in without taking out a big mortgage on my new home. can this be offset against cgt

Expert:  TonyTax replied 3 years ago.

Thanks.

If you decide to sell the marital home, you have three years to do so from the date that you moved out to do so before you need to concern yourself with CGT. The last three years of ownership of a property which has been your main home is always treated as an exempt period for CGT purposes. Take a look at the HMRC helpsheet HS283 here for more information on the main residence and CGT.

I hope this helps but let me know if you have any further questions.

TonyTax and other Tax Specialists are ready to help you
Expert:  TonyTax replied 3 years ago.
Thanks for accepting my answer.
Customer: replied 3 years ago.

Can u also advise if it would be beneficial tax wise to borrow against the equity in the marital home which im renting out to repay mortgage on my new home. Would I be able then to offset mortgage pmt from rental income

Expert:  TonyTax replied 3 years ago.
Can you tell me how much the property was worth when it was first let and what the value of any outstanding mortgage secured on it was at that time please.
Customer: replied 3 years ago.

Worth 175k, had outstanding mortgage of 25k but used proceeds of insurance policy ie mortgage cover when my husband died to repay it.,so when I decided to rent rather than live in it or sell I had already repaid mortgage few mths previously

Expert:  TonyTax replied 3 years ago.

Thanks.

When you start letting a property, you are treated as having introduced capital into a letting business equal to the value of the property which you can withdraw at any time. What this means in practice is that if you borrow against a property that you have equity in when it is first let, you can remove that equity in the form of a mortgage for any purpose and claim a deduction for the interest you pay against the rental income.

 

In your case, you can claim a deduction against the rental income for interest on a mortgage of up to £175,000 in value.

Take a look at Example 2 here for a situation similar to yours.

Customer: replied 3 years ago.

Would you advise me to do this in your opinion or just pay tax on rental income I receive. Its all so confusing. If I need to sell withjn 3 yrs so that I dont have to pay cgt am I best just leaving things as they are and pay tax on rental income

Expert:  TonyTax replied 3 years ago.
Any mortgage on the property will not be taken into account in calculating your CGT liability if you have one.

I cannot advise you whether to take a mortgage out as I'm not an independent financial adviser nor am I allowed to advise you on such matters on this site. What I would say is that by taking a mortgage against the let property you will reduce your tax liability on rental income but you still have to make the mortgage payments and repay the mortgage at some time in the future.

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