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bigduckontax, Accountant
Category: Tax
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I want to rent out my main residence and buy another house

Customer Question

I want to rent out my main residence and buy another house to live in. I bought it in 1999 for £150000 and it is currently valued at £375000. Will I loose some of my equity to the tax man if I sell it in 2 years?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Many people do not realise that whenever they sell their houses any gain made is subject to Capital Gains Tax (CGT). If it is, as it is for most, their sole or main domestic residence Private Residence Relief (PRR), which relieves 100% of the gain, is applied automatically so they never know.
If you rent out your house and sell it in two years than you will be liable to CGT. However, for the last 18 months of ownership you are deemed to be in residence even if you are not. You then calculate the rental period in months, less 18, and the total ownership ditto. GGT on the gain [372K - 150K = 225K] is only charged for the proportion representing the rental period so we are looking at 6/216 say equivalent to say 2.8%. So you might be taxable on something under 7K. You have an Annual Exempt Allowance of 11K so there would be no CGT to pay. Furthermore there is a relief called Lettings Relief which is available up to 40K, but it does not sound as you would need this.
Have a care, though. When you buy your new house you can elect to which residence you wish PRR to be applied, but from the data you have given me the one to elect is the second as you would be entitled to PRR on the first residence up to the point of the second purchase and as we have seen the possibility of CGT is minimal, unless property prices simply rocket.
I do hope I have shed some light on your probable position if you proceed as planned. I hope I have been of some assistance.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3119
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Customer: replied 2 years ago.
Re your e mail this morning what was the additional information you required?
Expert:  bigduckontax replied 2 years ago.
None required; we have, I think, satisfactorily resolved your original query. Sometimes one has these hick ups when you initially think about the question, ask for more detail which you realise as you get into it you do not actually require! I am so sorry if I confused you initially. I must be getting old!

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