Hi.If you sell the property you currently live in, you will have no Capital Gains Tax to pay so long as you sell it within 18 months of moving out as it will have been your main residence. However, see page 4 and example 6 on periods of absence in HS283 here.If you let the property you currently live in and it was let until your death, the value of that property when you die will be included in your estate for Inheritance Tax purposes. Currently, the first £325,000 of an individual's estate is exempt from IHT or more accurately is charged to IHT at 0%. The excess is charged to IHT at 40%. There would be no CGT unless your executors sold it for more than it was worth when you passed away. On death, your record of usage of the property ceases to be relevant.Take a look here for more information on the main residence and CGT and here for information on IHT.
I could explain the principles but its easier to get them across using figures.
Can you tell me the month in 2010 you bought the property and how long it was before you could move into it given that it needed work doing to it. What did you spend the £65,000 on roughly. Can you give me a figure as to what you think it may worth in five years or should I use the £325,000 figure?
Hi again.As you moved into the property within 12 months of buying it, the period of six months before you actually moved in is treated as a period of occupation by you.If you let the property from January 2015 and sell it in November 2019, by that time you will have owned it for 109 months of which you will have lived in it for 50 months and let it for 59 months. The gain for the period that you occupied the property as your main home will be tax free as will the gain for the last 18 months of ownership. If the property was sold and you made a gain of £89,500 (£320,000 - £165,500 - £65,000), then £55,835 would be exempt from CGT (£89,500 / 109 x 68). The balance of the gain of £33,665 would be gain for the period the property was let excluding the gain for the last 18 months of ownership (£89,500 / 109 x 41).As the property will have been both your main home and let, you will be entitled to letting relief which will be the lesser of:1 £40,000,2 the gain covered by the period you lived in the property and the last 18 months of ownership which would be £55,835 and3 the letting period gain of £33,665.Letting relief of £33,665 would reduce the remaining gain of £33,665 to £0 so you would have no CGT to pay.If the property increases in value over the next five years, then you may have CGT to pay as letting relief is limited to £40,000 per part owner. Obviously, tax rules may change in the future so the tax position could be completely different to that of today.