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I am selling my house that I have lived in for 34 years to

Resolved Question:

I am selling my house that I have lived in for 34 years to move into one I have rented for 10 years.
Will I have to paye income tax on all that I sell it for?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.

No, the property you are due to sell, which is the one that has been your main residence throughout the period of ownership will not give rise to any capital gains (or income tax!) as the profits made, are fully covered by a relief, known as private residence relief.
And you have currently up to 36 months from the date you move out, to sell before capital gains have to be considered (this is due to change to 18 months from 06/04/2014) so this allows you scope to move prior to the actual sale date , if you wish.
If you then sell more than 36 months (soon to be 18 months) after moving out, then a capital gain position is then to be considered.

However for information, the property you plan to move into, when and if, you sell this in the future WILL have a capital gain tax position to consider, as there would have been a period when this was not your main residence (the first 10 years of ownership) But assuming that you have declared rental income to HMRC, then this period of time, will attract a further relief, known as private lettings relief, which exempts an amount up to a maximum of £40,000 (this is only awarded when a property has had some point been your main residence AND also let out to tenants)

Just so you know how capital gains tax works, the sale value can have deducted from it the purchase value , the costs to buy and sell (so legal fees and stamp duty and estate agent fees) and the costs of any major renovations, such as new bathroom, kitchen, new roof etc
The amount left over is then considered for tax reliefs, and in the instance of this property that will become your main residence, you have the time you lived there under the main private residence relief rules (and again if you were to move out and sell after vacating the property, could have up to a further 18 months to sell and still qualify for this period of time for private residence relief)
Then you also have the private lettings relief to consider - this looks at allowing an exemption that is the lesser of
1) the amount of gain on which private residence relief is due
2) The amount of gain AFTER private residence relief has been applied OR
3)£40,000

The lesser figure is then deducted, and then what is left over is the capital gain to consider.

But then you ALSO have an annual exemption allowance - this currently allows the first £10,900 of the gain to be exempt, and this is due to increase to £11,100 from 06/04/2014

Then the final figure is what you are charged on.
As things stand capital gains has two rates 18% and 28% - if your annual income in the year of sale (from your normal sources of income) are in excess of the basic rate threshold, currently £42,475 - then the remaining gain is liable to 28%
If your annual income is less than £42,475,m then you have some unused basic rate band, and the difference between the £42,475 threshold and your annual income can allow an EQUIVILENT amount of gain to just be charged at 18% and then any balance of gain charged at 28%

Please note that the annual exemption allowances and rates of capital gains could be subject to change - these are the current positions.

So to recap
1) No capital gain tax on the sale of your current residence (unless you sell more than 36/18 months after moving out) and income tax does not apply on house sales.
2) The current rented out property, will, if and when sold WILL have a capital gain position to consider.

Thanks

Sam



Customer: replied 3 years ago.


I think I was ok with the capital gains position on the rented property, but thankyou for clarifying


Re the income tax...


I am actually in the middle of selling my house and the buyer wants it done ASAP, and yesterday I suddenly thought about the income tax as end-of-year is coming up


So could I clarify please..


If I sell the house (regardless of tax year) for,say, £100K, then I can just bank it all with no fear of inland revenue wanting tax on it

Expert:  Sam replied 3 years ago.
Hi Ted

Thanks for your response

Yes the money is entirely yours, as you are merely selling your own home - link here just to offer you reassurance,
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

Thanks and good luck with the move

Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13776
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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