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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi, I have a question about tax associated with sale of residential

Resolved Question:

Hi, I have a question about tax associated with sale of residential property. I have owned a house since Sep 2002 which was the main residence for my family since that date.
On 20 Nov 2012, we decided to move to another part of the city and bought a new home (which became our main home). We rented out the previous property through a reputed agent (under a proper rental agreement etc). The agreement comes up for renewal in Jun 2015.
Could you please guide me with the following:
1. If I were to sell the home immediately after the rental expires (Jun '15), will I be liable to pay taxes on gains from the property sale? I ask because I had heard that gains are tax-free for 3 years.
2. If I were to renew the lease for a further 12 months and decide to sell the house in Jun '16, will I be liable to pay taxes on the gains?
3. In both cases, what would be the indicative tax amount (let's assume the property was bought for £200k in 2002, will be sold for £400k in future).
Thanks a lot, in advance.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell me which month in 2002 you bought the first property please. Which month and in which year was the first property let? It it jointly owned?
Customer: replied 2 years ago.

Hi,

Here are some further details (including answers to your questions):

1. The property was bought in Sep 2002.

- We immediately moved into that property and it became our main residence for my family.

- It was the first property for us. Prior to that date, we lived in rental accommodations.

2. The first lease to let out the property was signed on 7th Dec 2012.

- The few days between when we bought the other property and tenants moved into this one was spent in moving (done piecemeal as we owned both properties), followed by replacing the boiler (of the rental property), cleaning and hand-over.

- The first set of tenants moved out a year later.

- The property was empty for approx 4 weeks after which a new set of tenants moved in.

3. The property is jointly owned by me and my wife. When it was our residential home, we lived at the property as a family continuously (i.e. we did not let out any portion of the premises at any time between Sep 2002 and Nov 2012).

Hope that helps.

Expert:  TonyTax replied 2 years ago.
Thanks.
Leave this with me while I do some calculations. It will take a while so please bear with me.
Expert:  TonyTax replied 2 years ago.
Hi again.

You should refer to HS283 for more information on the main home and CGT. The helpsheet refers to the last 36 months of ownership of a property which was been the owner's main home as being a tax free period even if they were not living there during that time. For disposals after 5 April 2014, the relief is reduced to the last 18 months of ownership.

DISPOSAL IN JUNE 2015

If you sell the property in June 2015 for £400,000 you will make a gain of £200,000, £100,000 for each of you and your wife. By that time, you will have owned it for 154 months of which you will have lived in it for 123 and let it for 31. The following figures are for each of you individually:

The gain for the period the property was your main home will be exempt from CGT as will the gain for the last 18 months of ownership. That accounts for £91,558 (£100,000 / 154 x 141). The remaining gain of £8,442 (£100,000 / 154 x 13) is the gain for that part of the letting period which is not covered by the last 18 months of ownership. 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 exempt gain of £91,558 and

3 the letting period gain of £8,442.

Letting relief of £8,442 will reduce the remaining gain to £0 so you will have no CGT to pay based on the facts and figures provided.

DISPOSAL IN JUNE 2016

If you sell the property in June 2016 for £400,000, the figures will be as follows:

Exempt gain £84,940 (£100,000 / 166 x 141)

Letting period gain £15,060

Letting relief £15,060 (the lesser of £40,000, £84,940 and £15,060).

There will be no taxable gain and, therefore, no CGT to pay.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 2 years ago.
I have to go out for a while but will be back in about 30 minutes or so to answer any follow up questions you may have.
Customer: replied 2 years ago.

Thank you, ***** ***** is very useful.

I read HS283 and now understand the part of your calculations that states:

"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 exempt gain of £91,558 and 3 the letting period gain of £8,442." In my example, the £8,442 rises to £15,060 when I hold on to the property for a further year.

Now, If I defer the sale of the property for a few more years i.e. until the fractional gain (the amount equivalent to £8,442 or £15,060) reaches £40,000, does this mean I will still pay no CGT?

I realise that HMRC or the Chancellor may change the law and I will have to keep a look-out for that. But, in the absence of a change to law, I may be better off holding on to the property for a further year or two {although I will be exposed to risks of property price falls etc}.

Would appreciate your opinion on the tax angle.

Expert:  TonyTax replied 2 years ago.
The letting relief you will get is dependent on time and the sale price of the property. It doesn't follow that you can predict with certainty what it will be. It's a moving target. The maximum LR that any individual can get is £40,000.

Tax rules can and do change so you should bear that in mind.
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