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bigduckontax
bigduckontax, Accountant
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Capital Gains Tax on Property - Lettings Relief. I dont' fully

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Capital Gains Tax on Property - Lettings Relief.
I dont' fully understand this relief; it seems less straightforward that Primary Resident's Relief. Please could you advise on the hypothetical example below:
I move into a property January 1st 2007. I live in it for 3 years until 31st Dec 2010.
I then let it out for exactly 4 years until 31st December 2014.
I then live in it for 6 months until 30th June 2015 when I sell it immediately.During the whole 8 1/2 years, the property increases net £100k after costs have been deducted.
I believe the last 3 yrs are tax exempt (including 2 1/2yrs when it was let) so due to Primary Residence I only have to paytax on 1.5/8 = 18.75% of £100k. What I am not clear on is where Private Lettings relief kick in. Is this applicable to the remaining £18,750?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Firstly you are using the wrong terminology, I think you mean Private Resident Relief! However, that is just being pedantic.
The rules were changed in the 2014 Budget, when the three year period was reduced to eighteen months in which you are deemed to be in residence even if this is not the case.
So, to calculate your Capital Gains Tax (CGT) position you have to work in months. Your total ownership period would be 90 months. The letting period would be 48 months, but adjust down by 12, the balance of the last 18 months of ownership as you were in residence for the last 6. Thus only 36/90 (40%) of the gain would be subject to CGT.
The gain was 100K so 40% of that is a mere 40K. You do not get an Annual Exempt Amount [11K, this tax year]; Lettings Relief is in substitution therefor. It is available up to 40K so in your example you would have no CGT liability on sale.
Simple, as the Mercat in the TV advert would say
I do hope that Lettings Relief and Private Residence Relief are now clear as mud for you following my panegyric on the subject!
Customer: replied 2 years ago.

Ok thanks.

So, if I understand you correctly, Letting Reliefs is only applicable to a property you once lived in and covers the time it was let out, up to a maximum of £40k?

Expert:  bigduckontax replied 2 years ago.
Got it to a 'T!'
Your understanding is bang on.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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