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bigduckontax
bigduckontax, Accountant
Category: Tax
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I live in a house purchased in 1997 for £63000, current value

Customer Question

I live in a house purchased in 1997 for £63000, current value £200,000. I have bought a 2nd property to live in in approx 2 years time, value £215,000 with a buy to let mortgage which will be rented out for 2 years. When I sell my current house I will move into the 2nd one and pay off the mortgage. Will I pay capital gains on the house I sell, which has always been my home. I will not be moving again.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
From the tenor of your question I assume that you did not elect to which property you would like your Private Residence Relief (PRR) applied. HMRC will thus base any application of Capital Gains tax (CGT) on the facts. In this case i have little doubt as to the position. Not many people realise that when they sell any landed property they are liable to CGT, but as nearly everyone is entitled to PRR on their sole or main domestic residence which relieves the tax at 100%.
Your initial house, your main, and for o=most of the time, your sole domestic residence will reap the PRR reward and there will be no CGT payable on sale.
As for the second property CHGT will apply on an ultimate future disposal. However, it will be severely limited as PRR will apply from the moment you move in an occupy To work out the proportion of CGT applicable, and you cannot do this until you sell, you must compute the total ownership period in months. Then calculate ditto for the rented out period and the fraction of the one against the other will give you the proportion of the gain which will be exposed to CGT. You will appreciate that the longer you own the smaller the proportion. Unfortunately, as you did not live in the property Lettings Relief (LR) will not apply; a pity that it can be worth up to 40K. In any event you have an Annual Exempt Allowance of 11K to offset any gain.
P{lease note that statistically you will move house eight times in your lifetime, so don't be so sure! I do hope I have set your mind at rest on this matter. By the way there is no CGT on death, all assets being aggregated for Inheritance Tax which kicks in at 325K (plus inter spousal and certain other bequests, mainly charitable) and is levied at a flat rate of 40% on the surplus.
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Customer: replied 2 years ago.

Thank you, ***** ***** what I thought the position would be, but needed to know I had researched it correctly. Could you explain 'letting relief?

I will be leaving positive feedback, and will remember this site for future use.

Expert:  bigduckontax replied 2 years ago.

If you have lived in a residence and then let it out. when you finally come to sell then instead of Annual Exempt Allowance you can receive LR which is available up to 40K, not to be sniffed at! You must have lived in the house before you let to an create an entitlement to LT.

I am delighted to have been of assistance, please accept my apologies for a tardy response. Please don't forget to rate me.

Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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