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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi, I have two properties I rent out. I had lived in bothe

Customer Question

Hi,
I have two properties I rent out. I had lived in bothe properties before they were rented out. I'd like to know my tax liabilities please.
Property 1.
Lived in this for around 12 years (1990 - 2002). I bought it for £57k. Now worth about £120k. Currently has a £75k mortgage on it (interest only).
Property 2.
Lived in this for around 10 years (2002 - 2012). Bought it for £91k. Now worth about £250 - £275k.
If I were to sell these houses what would be my tax bill and how could I reduce it?
Many thanks
Clare
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Are the properties owned by you alone or jointly owned?
Expert:  TonyTax replied 2 years ago.

Hi again.

I thought I'd give you an answer based on the assumption that the properties are owned by you solely and will be let up to sale as, in that case, its very straightforward. Take a look at HS283 for more information on the main residence, letting relief and Capital Gains Tax.

PROPERTY 1

Gain: £63,000 (£120,000 - £57,000). Mortgages are irrelevant as far as CGT is concerned. The costs of buying and selling can be claimed as additional costs as can the costs of property improvements.

Exempt gain: £35,438 (£63,000 / 24 years x 13.5 years). The last 18 months of ownership is given as a tax free period where the property has been the owner's main home at some point.

Gain for letting period: £27,562 (£63,000 / 24 years x 10.5 years). The last 18 months of ownership is excluded as it has been included in the exempt gain calculation.

Letting relief: £27,562, the lesser of £40,000, the exempt gain of £35,438 and the letting period gain of £27,562.

Taxable gain:£0.

PROPERTY 2

Gain: £184,000 (£275,000 - £91,000). Mortgages are irrelevant as far as CGT is concerned. The costs of buying and selling can be claimed as additional costs as can the costs of property improvements.

Exempt gain: £176,333 (£184,000 / 12 years x 11.5 years). The last 18 months of ownership is given as a tax free period where the property has been the owner's main home at some point.

Gain for letting period: £7,667 (£184,000 / 12 years x 0.5 years). The last 18 months of ownership is excluded as it has been included in the exempt gain calculation.

Letting relief: £7,667, the lesser of £40,000, the exempt gain of £176,333 and the letting period gain of £7,667.

Taxable gain: £0.

If one or both of the properties was put into joint names with a spouse or a civil partner during a period when the property was not the main home of you both, it will have a significant effect on the figures and there may be CGT to pay.

The figures really need to be calculated based on complete months of ownership, occupation as a main home and as a let property.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Hi,

Thank you for that.

The first property is soley in my name so do I understand that there is no tax to pay? You mention that to be accurate you would need dates in months - could this cause the answer to be much different?

The second property was in my name initially (until 4 years ago) then went into joint names with my husband.

A lot of work went into this property - probably around £30-40k when I owned it soley - at the beginning. I don't have any proof though - except the odd picture.

Are you estimating rental values in the calculations? I havent studied the calcs but it isn't immediately obvious what you've done - to me!

Thank you very much for your help,

Clare

Expert:  TonyTax replied 2 years ago.
After you have sold the properties, you would need to work out now many months you owned them, how many months you lived in them and how many months they were let. Substitute those figures for the number of years I have used. The workings for the figures are in brackets. There are examples in HS283.

If the second property was put into joint names whilst you were living there, then the gain of £184,000 is simply divided between the two of you and then you do the calculations using complete months as described above. I've used years as that is what you gave me. It's a simple substitution procedure. You won't need the improvement expenditure as you don't have a taxable gain in any event.

Read the notes here as it's critical that property 2 was your main home when it was put into joint names. If it wasn't and your husband didn't live there during his period of part ownership he won't qualify for main residence relief backdated to the purchase date. The improvement expenditure would then need to be brought into the calculations but if you don't have proof you may have trouble claiming it.

Rental income is irrelevant as far as calcualting the gain is concerned. I don't see how I could make the calculations clearer. The "exempt gain" is that part of the gain covered by your occupation of the property and the last 18 months of ownership and is not taxable. The "letting period gain" is that part of the gain covered by the period the property was let apart from the last 18 months of ownership. This is a taxable gain but is covered by "letting relief" so there is no taxable gain on either property subject to the proviso I mentioned on property 2, hence "taxable gain" £0.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 2 years ago.

Hi,

That's great. I had a quick look at the link that you gave me and it all became clear. Yes, my husband was living at the property with me when it was put into both our names. It was about a year later that we moved out. So all should be ok.

Thanks for the answer and in particular pointing me to the correct place for me to make these calcs for myself in the future. As long as the laws don't change. Which they will.

Thanks, Clare

Expert:  TonyTax replied 2 years ago.
Thanks for accepting my answer and for the bonus.

If you give me exact months of ownership, occupation and letting when you've sold the properties, I'll redo the calculations but there should be very little difference.

As you and your husband were living in property 2 when you put it into joint names, he will take your purchase date as his own, half the cost, half the improvements costs (not that you need them) and half the disposal proceeds. I'm assuming he was your husband at that time.

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