Hello, I'm Keith and happy to help you with your question.
Your are well on the way to understanding. Your Capital Gains Tax (CGT) position is as follows.
Take the purchase price, add costs of purchase add any improvements eg new kitchen, installation of central heating, double glazing etc. Then take the sale price less the costs of sale, take one from the other and that is the capital gain.
Now work out your total ownership time in months. Ditto for the rental period and from the rental period deduct 18 months. This figure over the total ownership period is the proportion of the gain which will be subject to CGT.
From that deduct your Annual Exempt Allowance of 11K and Lettings Relief of up to 40K; that assumes that you have been declaring the gain for Income Tax.
As far as the lodgers are concerned if there were more than one then the rental figure period would be extended by that occupation time reducing the proportion adjustment figure and increasing the chargeable gain.
I do hope I have helped in this short canter through the CGT jungle; an extremely complex tax.
Thank you for your quick reply Keith,
My main issue is that I only lived there whilst I also had 2 lodgers. So does that mean I don't qualify for any main residence relief at all?
Ie can I not knock off the % for year I was there and final 18 months.
If that's the case I assume I wouldn't qualify for the lettings relief either.
I think I understand now
If, for example, the gain is 260 000 and I own it for 10 years
I would be taxed on 8.5/10 (221 000) of this as I can only treat the last 18 months as exempt. This is because it was also rented to more than one lodger during that year I was there, so that doesn't feature in the equation to reduce gain by another year.
If the PRR is the smaller of 40k, the gain (221 000) and the exemption (39 000) , am I right that would only be 1.5/10 of 260 000 (39 000)
In other words I'd be taxed on 260K less 39000 less a further 39000 (less the annual tax free 11k)
Hope I got it now!! Phew need a lie down.
Sorry to keep on. But is the lettings relief 40k or would it be 39 being lower.
I think its the lower of 40, the gain and the bit treated as main res (ie 39) isn't it?
So in my scenario it would be 39k being the PRR 1.5/10 260k
I thought that was the amount of PRR which equates to the % of ownership treated as Main residence which in this case is only the last 18 months.
ie gain is 260K and after PRR of 39k it leaves 221K
I thought the lettings relief was the lower of 40k 39k or 221k using those figures.
Or have I misunderstood?
I'm so sorry to keep bothering you but I still don't understand what the 2nd value would be then in the HMRCs lowest of 3:
'The maximum amount of Letting Relief due is the lower of:£40,000The amount of Private Residence Relief dueThe amount of gain you've made on the let part of the property'
If the PRR in my scenario isn't 39k Im not quite sure what it is.