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TonyTax
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Advice on CGT on property used as main house then rented for

Resolved Question:

Advice on CGT on property used as main house then rented for a 2 years and now being sold.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

Prior to your letting of the property was it your main residence from the date of purchase to the date you moved out? When are you likely to exchange contracts for the sale?
Customer: replied 3 years ago.

Hi, between 2002 and Nov.2011 it was my main home. It was rented out between Nov 2011 and Jan 2014, empty until now; due for exchange of contract and completion on the same day - 28th of March 2014.

Expert:  TonyTax replied 3 years ago.
heanks.

Leave this with me while I draft my answer.
Customer: replied 3 years ago.

Ok, thank you.

Expert:  TonyTax replied 3 years ago.
Hi again.

A gain or loss on the sale of a property is treated as having accrued evenly over the entire period of ownership of it which if you divide it into months of ownership makes working out the taxable and non-taxable parts fairly easy.

The gain for the period that you lived in the property and it was your main home is exempt from CGT. For property disposals where the exchange of contracts occurs by 5 April 2014, the last 36 months of ownership where you were not living there will also be exempt from CGT. Assuming you moved into the property as soon as you bought it and did not make an election for another property to be treated as your main home, none of the gain will be taxable as you will have sold it within three years of moving out.

From 6 April 2014, the last 36 month exemption is being reduced to 18 months. Even if you exchanged contracts after 5 April 2014, less than one year's worth of the gain would not be covered by the basic reliefs and that would probably be covered by letting relief.

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.
Customer: replied 3 years ago.

Hi, I have looked at teh helpsheet before, what made me confused is whether the 3 years still apply even though the property was rented out? The information on the sheet is not very clear on that. Also, where can I find some more info on the letting relief (if it would be needed in the worst case scenario) because all the forms refer to it and say that it is up to £40k but it doesn't say if it is £40k per person or per house; in other words can I claim up to £40k letting relief and my husband (joint owner) up to £40k or each of us could only claim up to £20 (total £40k).

Expert:  TonyTax replied 3 years ago.

You only account for each month of ownership once. Any part of the letting period which is covered by the last 36 months of ownership (18 months after 5 April 2014) does not qualify for letting relief as that period will be exempt from CGT in any event.

If you exchange contracts on 31 May 2014, for example, the gain from the purchase date in 2002 to the date you left in November 2011 will be exempt due to main residence relief.

The gain for the last 18 months of ownership will also be exempt due to the extension of main residence relief. That will cover from 1 December 2012 to 31 May 2014.

The letting period gain not covered by the last 18 months of ownership will start on the date the property was first let in November 2011 and end on 30 November 2012.

Letting relief of up to £40,000 is available to each part owner of a property so long as it has been let during that part owner's period of ownership. So, for example, if the house was in your name only as of now, your spouse would not be entitled to letting relief if you put it into joint names before the sale as it will not have been let during her period of ownership, given that the letting ceased in January 2014.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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