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I have bought my first house on 17/08/2007, lived there with

Resolved Question:

I have bought my first house on 17/08/2007, lived there with my family till 21/03/2011, when we decided to move to a different area because of school, so we moved to a rental property in new area on 21/03/2011. We lived in rental house till 15/05/2013 when we bought our second house in the area and moved in there.

Regarding the first house, initially we wanted to sell it but as the market was pretty bad in 2011 we decided to rent it out, so we did that. The tenant moved in on 09/04/2011, lived there till 25/05/2014.

we now selling our first house. the sale date would be 20/06/2014.

I noticed in HMRC website that if at some point over the last three years that was your only house then CGT would not be payable. We have bought our second house some 13 months ago, so for the first 23 months of "three last years" the first house was our only ones.

Can you please advise if CGT is payable?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi

Thanks for your question. My name is ***** ***** I am one of the UK tax experts here on Just Answer.

The last 36 months (3 years) of ownership used to be exempt rom capital gains (along with the time you lived there) however from 06/04/2014 this has changed so that only the last 18 months is covered under the private residence relief exemption (along with the time you lived there)

However along with the private residence relief, which will cover 41 months living there plus the last 18 months, so a total of 59 months of the 70 months of ownership, you are also entitled to private lettings relief (assuming you declared rental income to HMRC) which allows up £40,000 relief from any gain arising.

Plus the first £11,000 of the gain is exempt, as this is your annual exemption allowance (and this allowance x 2 if the house was changed to joint names plus 2 x private lettings relief)

So you may have very little gain at all, in spite of the rule change with the last period of ownership and private residence relief.

Thanks

Sam



Customer: replied 2 years ago.

Hi Sam,


 


Many thanks for prompt response.


 


Can you clarify this for me please. Can I be exempt just on private residence relief? got a bit confused there, sorry.


 


If the last 36 months changed to 18 months, I think I am still Ok as the time duration that I have had two houses is around 14 months.


 


Regarding letting relief I got this from HMRC website:


The amount of relief is the lowest of:
• the amount of Private Residence Relief already calculated, or
• £40,000, or
• the amount of any chargeable gain you make because of the letting
(calculated as a fraction of the gain – the fraction being the period of
letting/divided by the period of ownership).


 


 


Thanks and Regards


Mahmood


 


 

Expert:  Sam replied 2 years ago.
Hi Mahmood

Thanks for your response

No, only some of the gain will be exempt - in essence it will the gain made (so difference between sale price and purchase price, from which you deducts costs to buy and sell and the costs of any capital improvements)
Then this final figure is then calculated as 59 months/70 months to establish which element is exempt under the private residence relief rules.

Then the private lettings relief, which you have spot on, as its up to a maximum of £40,000 exemption - and yes is the lesser of
the amount of Private Residence Relief already calculated, or
• £40,000, or
• the amount of any chargeable gain you make because of the letting
(calculated as a fraction of the gain – the fraction being the period of letting/divided by the period of ownership). (which in essence is the considered gain left over after private residence relief has been applied.

And the fact you had two house for the last 18 months of ownership has no bearing on the additional private residence relief due.

Thanks

Sam
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Category: Tax
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