How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Sam Your Own Question
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13868
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
16196420
Type Your Tax Question Here...
Sam is online now

I am thinking of buying a house and would like to get a definitive

Resolved Question:

I am thinking of buying a house and would like to get a definitive answer on CGT liability when i sell my house where i have had more than one lodger.
An example...
I buy a house for £300,000
I take on two lodgers (they have their own bedrooms but share kitchen, toilet, living room etc with me). So there will be 3 of us in the house.
I charge rent of £350 pm. So total of £8400 pa.
I may work from home on contracts, but will probably not make much money.
After seven years I sell it for £500,000
so a gain of £200,000
will I be charged CGT on the gain because I have had more than one lodger? (most people seem to say that this is unlikely, but I really need to know as all the gains I have made in letting income could be wiped out by CGT charges).
If yes, what will the CGT be? (Assuming £10,000 of personal allowance and I have no other income in that tax year).
(I have heard that there is £40,000 of some additional letting allowance that I might be able to use. Is this correct?)
thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.

Thanks question
Yes there will be a capital gain, and this will be affected by two lodgers as it would mean that 2/3rd of the houses gain (to represent 2 lodgers out of 3 residing) has to be considered.
If you had just one lodger and the rents were less than £4250 a year, then you would be able to claim exemption under rent a room relief, on both the rents and the capital gain position, but as the income was/will be in excess of this threshold, you are treated as receiving UK property income.
You will not be eligible relief, as you remain living in the property (this applies to those that go on to rent out a property that was once their main residence, which does not apply in this case)
So if the gain was £200,000 and both lodgers remained living at the property with you, throughout the whole period of ownership, then 2/3rds of the £200,000 would be considered gains - so £133333, from which the first £11,000 would be exempt (as this is your annual exemption allowance) and the remaining gain of £122,333 will be liable to capital gains.
If year the property is sold you have no other income then the first £31865 of the gain will be liable to 18% = £5735.70 and the remaining gain of £90468 will be liable at 28% = £25331.04 - a total capital gains bill of £31,066.74
Than
ks
Sam
Expert:  Sam replied 2 years ago.

Your post has reappeared on the question list but there does not appear to be anything further asked for?
Please let me know if you required any clarification or further information on the answer supplied.
Thanks
Sam
Customer: replied 2 years ago.

Thanks. I posted this response but it has not appeared on the thread, so I will post again.

Please can I have some clarification on this point....

"If you had just one lodger and the rents were less than £4250 a year, then you would be able to claim exemption under rent a room relief, on both the rents and the capital gain position, but as the income was/will be in excess of this threshold, you are treated as receiving UK property income."

Do you mean by this that I may be liable if I have income of more than £4250 a year irrespective of the number of lodgers I have? Or am I safe from any CGT liability if I only ever have one lodger?

Expert:  Sam replied 2 years ago.

Thanks response
Even if you just have one lodger - if the rents are in excess of the rent a room relief limit £4250, then you will have a capital gain consideration on sale of the property.
But of course along with that you have private residence relief due on the rest of the property period of time AND whole of the property time you did not have lodgers, plus you are due a further tax relief called private lettings relief, which can allow up to a further £40,000 exemption of any capital gain.
Let me know if you require any further information, although it would be appreciated if you would rate the level of service I have provided, as this ensures Just Answer credit me time
Thanks
Sam
Customer: replied 2 years ago.

You say: "Even if you just have one lodger - if the rents are in excess of the rent a room relief limit £4250, then you will have a capital gain consideration on sale of the property.

Are you sure this is correct? It says here:

https://www.gov.uk/tax-sell-home

"You don’t pay Capital Gains Tax when...you haven’t let part of it out - this doesn’t include having a single lodger".

You say I can claim private letting relief, however in you first reply you say "You will not be eligible relief". Can you tell me which it is please. (I will be resident in the house all the time.) And if I can claim it after all, can you redo the tax calculation.

Expert:  Sam replied 2 years ago.

Thanks response
Having worked 26 years prior to setting up my own business, I am sure.
When HMRC refer to the one lodger they assume that this all falls under the rent a room scheme.
But you already advised this is not the case, see here examples HMRC provide in what private residence relief you get when you let out part of your home.
See under the heading How much private residence relief you will get
https://www.gov.uk/tax-sell-home/let-out-part-of-home
Then private lettings relief - I have advised you will be entitled to private lettings relief - see my last post. But I apologise as I had indeed stated earlier that private lettings relief would not be due (incorrectly so) and you can also see in the link I have provided, that it clearly states private lettings relief would be due up to a maximum of £40,000
So the recalculation
So if the gain was £200,000 and both lodgers remained living at the property with you, throughout the whole period of ownership, then 2/3rds of the £200,000 would be considered gains - so £133333, and you would be due private lettings releif, which is the lesser of
1) The amount of gain on which private residence relief is due (so 1/3rd of the gain = £ 66667
2) the amount of gain left over after private residence relief has been applied - so £133333
3) £40,000
As the lesser amount is £40,000 this is deducted from the £133333 = £93333 less the annual exemption allowance of £11,000 - £82333 x 28% = £23053.24
I am so sorry confusion
Thanks
Sam
Sam and other Tax Specialists are ready to help you
Expert:  Sam replied 2 years ago.
Donald
I hope you were able to see that the legislation gains applies to any element of the house that is let in excess of the rent a room relief rules- even if just one lodger - let me know if I can assist further
Thanks
Sam

Related Tax Questions