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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Im thinking about selling my flat that I rent out. Do I pay

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I'm thinking about selling my flat that I rent out. Do I pay capital gains tax on the profit (about £30k) if I use it to pay into the mortgage on my home?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Capital Gains Tax (CGT) and mortgages don't mix! You are renting out so the interest element of the mortgage only offsets the rent and reduces it for Income Tax purposes.

You are entitled to Lettings Relief (LR) under CGT rules. This is the lesser of 40K, Private Residence Relief [in your case presumably nil as you let out your flat and didn't live there], or the capital gain [in your case 30K]. It would appear from the data that you have given me in your question that you will escape CGT altogether on this sale as the LR will eliminate any liability.

What you do with the moneys you receive viz a viz the mortgage is irrelevant to the CGT position. Might well interest your lender though!
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4419
Experience: FCCA FCMA CGMA ACIS
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Expert:  TonyTax replied 3 years ago.

I have a different answer.

 

Repaying part of the mortgage on the home you live in will have no effect on the calculation of your taxable gain, if there is one. Letting relief is only available if the property has been both your main home at some point and let at some point.

 

If you exchange contracts to sell the property by 5 April 2014, the gain for the period the property was your main home will be exempt from CGT as will the gain for the last 36 months of ownership or that much of the last 36 months of ownership when you were not living there, whichever is less.

 

If you exchange contracts to sell the property after 5 April 2014, the gain for the period the property was your main home will be exempt from CGT as will the gain for the last 18 months of ownership or that much of the last 18 months of ownership when you were not living there, whichever is less.

 

If the property has been both your main home and let you will be entitled to letting relief which will be the lesser of:

 

1 £40,000,

 

2 the sum of the gain for the period you lived in the property and the gain for the last 36 (18) months of ownership of the property, excluding overlaps and

 

3 that part of the letting period gain not covered by the last 36 (18) months of ownership.

 

Take a look at the HMRC helpsheet HS283 for more information on the main home and CGT.

 

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