Thank you for your attention. The house is my main residence.
Hello! I have a house I am considering either renting out or selling. I always thought that CGT would retroactively apply on any period where this house is not my primary residence (as in a period where it was entirely rented out). But now I hear that if one moves back in to a place, in other words it becomes one's primary residence again, for a minimum 6 months, then zero CGT is chargeable. This would represent an enormous difference in potential liability as the house in question is in Chelsea and can be subject to rapid increases in value. It would be absolutely wonderful to know definitively how CGT is applied.
As the property is your main residence at present, if you decide to rent it out for a period before selling it you would be entiltled to relief as follows:
All period covered as main residence – private residence relief 100%
Final 18 months of ownership – additional relief 100%
As the property would have been your main residence at some point during period of ownership, you would also be entitled to letting relief to cover period let, to a maximum of £40,000.
More information on private residence relief is covered on HMRC worksheet HM283 here
Also, briefly, if it is the case that CGT can be effectively nullified by living in a place again for 6 months, are you aware of any planned legislation to close that 'loophole' (if indeed it can be considered a loophole)? And lastly if I mortgage a property that is being rented out, in other words I no longer really own it, how is CGT applied should I eventually come to pay off the mortgage and sell?
There is no CGT payable on sale of a property that is your main residence as all gain is covered by private residence relief. This may not be the case if the property is not your only or main residence throught out the period of ownership.
As far as mortgaged property is concerned, outstanding loan has no bearing on CGT as the tax is based on gain on realisation irrespective of debt/equity ratio of the property value.
I hope this is helpful and answers your question.
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Very helpful. The only problem I have is where you say 'this MAY not be the case if the property is not your only or main residence throughout the period of ownership'. Why can you not say 'this will not be the case if the property is not your main residence throughout...' Please if you can, quantify that 'may' - as that is where my central question lies. I understand if it is a rather involved area, just whatever you can do!
Oh and also, with the mortgage question, I was really referring to the ownership of the house rather than ratio of equity to value. Is it not the case that if I take out a mortgage on the property I relinquish ownership to the mortgagor?
Joseph, thank you for your reply...The reason why I say this may not be the case because it would depend on- total period of ownership- total period covered under private residence relief- period let- actual amount of gainIf after adjusting for 1 and 2 above the total gain was below £40k plus the gains allowance (currently £11k) then there is no CGT payable.Ownership remains yours but the lender has first charge on the property to cover the loan until the loan is repaid.I hope this is helpful and answers your question.
That absolutely answers it, thank you very much!