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Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I own a buy to let property which I purchased in 2007/2008

Resolved Question:

I own a buy to let property which I purchased in 2007/2008 and this has been let to tenants since I purchased it. If I decide to live in the property and then sell later, is there any exemption from capital gains tax? I know previously you could live in a property months as main residence but not sure what the laws are now. I am looking to move anyway so if this was an option I would consider this.
Also, if I was to sell it without living in it, what % do I need to pay
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
, I'm Keith and happy to help you with your question.
You are liable to Capital Gains Tax (CGT) on any gain made on your buy to let property. However if you move into it and occupy it as your sole or main domestic residence then only a proportion of the gain will be subject to CGT. The gain is the difference between the acquisition price, the pprice paid plus buying costs plus improvements eg installation of double glazing, central heating, extensions and the disposal price which is the net sales price, disposal less costs.
Work out your total ownership in months. Work out the buy to let period ditto less 18 ( last 18 months you are assumed to be in residence even if this is not the case, so the 6 month rule is redundant. Second number over the first number is ***** proportion of the gain subject to CGT. This is levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
If you do not physically occupy the calculation is the same save that there is no allowance occupation which did not occur save last 18 months aforementioned.
I do hope I have shed some light on your situation.
Customer: replied 2 years ago.

Keith

Thanks response.

Is there a minimum time I have to have it as my main residence or is the figure of 18 months always applied regardless of the length of time?

To clarify

If I move into it now , and have owned the property since Jan 2008, that would be 66 months (72 - 18). Does that mean 66% of the gain is taxed at 28% if the gain takes my income over the higher rate of tax?

So if we use the figure of £100,00 as the gain , £66,000 would be taxed at 28% so the overall tax to pay would be £18,480?

Expert:  bigduckontax replied 2 years ago.
There is no minimum time, the 18 months is effectively an overlap period to enable you to sell Even HMRC recognise that you cannot sell a house as easily and quickly as a car .
Otherwise your calculations are substantially correct.
Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 2 years ago.

Ok thanks.


Does this mean the longer you own a BTL property, essentially the more tax you have to pay?


Is it the same calculation if you haven't lived in it as your main residence but without subtracting 18?

I will have another CGT question to ask later this week so I may try to direct it to you.

Thanks help.

Expert:  bigduckontax replied 2 years ago.
Not quite, except increase in value by time of course.
There is a gain. It can be proportionately reduced if you live in the property period. If you don't live in it ever there is just the last 18 months to reduce the gain slightly.
There will be a slight delay in response as I am off to Thailand tomorrow month, eat your heart out! I will however be available on my step son's PC from Thursday!
Customer: replied 2 years ago.

I'm a little confused about calculating the gain, on the Which website it states an example:

If you own a property years (240 months), live in it as your main residence first 12 years (144 months), use it as a second home next four (48 months), then rent it out final 4 (48 months), you can claim both private residence relief (PRR) and letting relief on the gain you make when you come to sell.

Assume the profit you make on the sale is £100,000. The amount of PRR you can claim is 144 months plus 18 months final period of ownership. This is a total of 162 months, out of the 240 months total- 0.675%, which means that £67,500 of the £100,000 gain (£100,000 x 67.5%) is tax-free.

So in my example, would it be 66 / 72 = 91% so 91% of the gain would be taxed at 28%, not 66% of the gain?

Expert:  bigduckontax replied 2 years ago.
Deep apologies, I forgot to mention that your gain is reduced by 40K Lettings Relief.
Please advise the date you intend to occupy and also the date you intend to sell.
I will calculate it all out on Thursday as I am just in the process of moving to Thailand month.
Customer: replied 2 years ago.

I bought the property in October 2007 and it has been let since. I would only move in if it helped to reduce my CGT so it depends on how much potential savings there would be as to whether it is worth my doing so.

The potential approximate gain is £275k (without deducting my personal allowance). This would also take me into the higher rate tax band.

Is it possible to give me the approximate calculation scenarios:

1. If I did not move in and sold it in May 2015

2. If I move into the property in May 2015 and sold it in November 2015.

Please let me know if you need any other information.

Many thanks

Expert:  Sam replied 2 years ago.

I am Sam and as you have relisted the question, would you like me to proceed with assisting?
Thanks
Sam
Customer: replied 2 years ago.

Sam, I thought Keith was answering but if it has been assigned to you, yes please can you answer. I'm not sure if you have the whole of the question with the rest of the communication between myself and the advisor? Do you need me to provide more info?

Thanks

Expert:  Sam replied 2 years ago.

If you would prefer to wait - that's no problem, as we do not step on each others toes here !
I have all the information I need, if you would prefer me to proceed, but equally I am happy, if you would prefer Keith to continue
Thanks
Sam
Customer: replied 2 years ago.

Keith said he would reply today but was going on holiday to Thailand month so I think it's best to go ahead and answer, otherwise I might be waiting a month!

Thanks

Mary

Expert:  Sam replied 2 years ago.
Mary
That's fine
You wished calculations scenarios with a gain of £275,000
1. If I did not move in and sold it in May 2015
Then you would be due no tax reliefs at all, with just the first £11,000 exempt - and the remaining gain of £264,000 will be liable to capital gains tax and whilst you have not indicated what proportion of this might be liable to 18% tax, if it's all liable to 28% tax then the capital gains tax bill will be a maximum of £73,920.
2. If I move into the property in May 2015 and sold it in November 2015.
First, I cannot stress enough that were you to take this scenario forward that this period of 6 months must see you moving all aspects of your life into this property and also any other property that you may own either being put up or rented out to tenants in order to allow this six month period as qualifying residence relief and furthermore then also creating a qualification private lettings relief. But assuming this six months period of moving into this property is considered a valid period, then the capital gain position will be as follows:
Gain = £275,000 x (6/94) = £17,553.19
Remaining gain after private residence relief deducted = £257,446.81
Next we look at private lettings relief, this is the lesser of:
a) the amount of gain on which private residence relief has been given which will be £17,553.19
b) the amount of gain left over after private residence relief has been calculated which amounts to £257,446.81
c) £40,000
As you can see, the lesser figure is a), the amount of gain on which private residence relief has been given which is £17,553.19 so this is then deducted from the remaining gain (£257,446.81 - £17,553.19 = £239,893.62)
So you final position of considered capital gains is on £239,893.62 less the annual exemption allowance of £11,000 which leaves a final position of £250.893.62 x 28% = £70250.21
You can see the difference isn't a vast amount £3670 when you consider the costs to move in and out - and the change of all aspects of your life, months -
Let me know if you require any further assistance, but if you would take the time to rate the level of service provided, it would be appreciated.
Thanks
Sam
Customer: replied 2 years ago.

Sam

Thanks reply.

Can I please clarify you said the final position based on moving in would be £228,893.62 x 28% = £64,090.21, not £70,250 as stated as I think you added the £11,000 annual exemption rather than deducting?

So the overall difference between moving in and not moving in would be £9,829.79 not £3670?

So am I right to assume the longer I live there, the greater the overall saving?

I am also a little confused with private lettings relief and private residence relief. Are they two different tax reliefs? In your example I think you have applied private residence relief of 6 months.

Sorry confusion!

Many thanks again.

Expert:  Sam replied 2 years ago.

Thanks response
You are quite right in scenario 2 - I have added the annual exemption allowance - I apologise
Lets recalculate .
Gain = £275,000 x (6/94) = £17,553.19
Remaining gain after private residence relief deducted = £257,446.81
Next we look at private lettings relief, this is the lesser of:
a) the amount of gain on which private residence relief has been given which will be £17,553.19
b) the amount of gain left over after private residence relief has been calculated which amounts to £257,446.81
c) £40,000
As you can see, the lesser figure is a), the amount of gain on which private residence relief has been given which is £17,553.19 so this is then deducted from the remaining gain (£257,446.81 - £17,553.19 = £239,893.62)
So you final position of considered capital gains is on £239,893.62 less the annual exemption allowance of £11,000 which leaves a final position of £228,893.93 x 28% = £64090.21
Meaning the overall difference would be £9829.79
Yes private residence relief and private lettings relief are two different reliefs. The initial private residence relief looks at how much time you actually lived in the property, and as this at the end of the property ownership - you only get the time you lived there - which would be from May 2015 to Nov 2015 - just 6 months.
Then as you are entitled to private lettings relief, and have let the property out to tenants and declared the rental income to HMRC you are ALSO allowed a consideration lettings relief, which is the lesser of the three calculations as shown above. It just so happens that the lesser amount is the private residence relief entitlement - so in essence you get this amount x 2
The longer you live there, then yes, you could argue the greater the saving, but then you have to compare this with how much more would the property increase in value over that longer time.
The most tax efficient way to benefit tax wise from owning a second property, when you go on to rent it out to tenants, is to buy and live there initially (with all aspects of you live there) then move out and let it out - which then qualifies you private residence relief whilst you lived there PLUS the last 18 months worth of ownership as exempt under the private residence relief rules AND consideration lettings relief (up to £40,000)
The fact you have never lived here - the amount of private residence relief you will get will only ever reflect the time you actually were there - and if you sell after the move into the property you lose the permitted further 18 months exemption (which in turn lessens the amount of private lettings relief due)
Thanks
Sam
Customer: replied 2 years ago.

Thanks . These will be my final questions, I appreciate you have spent time on this.

Is private lettings relief not applicable if you have never lived in the property?

If I have CGT losses to offset eg £30,000, is this deducted from the overall gain of £275k and then tax applied or offset to the overall calculated liability?

Thanks again and I will provide ratings after this!

Expert:  Sam replied 2 years ago.
Mary
That's not a problem, its about making sure you are satisfied with the service you have received.
And if you have never lived in a property then it is due neither private residence relief OR private lettings relief.
Yes if you have losses these can be offset against this gain, and it is applied against the remaining gain (after all relevant reliefs there and letting it out) but before the annual exemption allowance.
So in example (scenario 2) you would have a gain of £228,893 less £30,000 losses - so a gain of £198,893 then the first £11,000 exempt - so a final position of £187.893 liable to capital gains tax.
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13938
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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