Hi.You won't incur a CGT charge by releasing equity by borrowing against the second property as opposed to selling it. However, when it is sold, you will have built up debt on the property which you will need to repay from the sale proceeds and none of that debt will be taken into account in computing the capital gain.If you sold it now, for example, there would be a gain of £67,500 (£165,000 - £97,500). Some of that gain would be exempt from tax and some would be covered by letting relief with the balance being taxable. Take a look at HS283 here for more information on the main residence and CGT.One thing that may be a problem. If you haven't done so already, you need to avoid putting the second property into joint names until you have considered the CGT position. In order for the individual who is being added to the deeds to effectively inherit 50% of the the original owner's main residence relief and letting relief, the property has to be put into joint names at a time that you are married or in a civil partnership and the property is your main residence and you are living there.I hope this helps but let me know if you have any further questions.
Thanks for the answer.
There is some further information my partner has just shared.
She has let the flat out for all but 18 months of the ownership period.
After reviewing HS283, if we were to dispose of the property now the gain would be £67,500.
We would get private residence relief on the 18 months she had it as a main residence and the last 36 months, equating to 54 months relief out of a total 156 months ownership. Therefore 54/156=0.346 which equates to relief of £23,355.
The remaining let period is 102 months therefore 102/156=0.654 which equates to £44,145. However the cap is the amount of Private Residence Relief already calculated, or £40,000, or the amount of any chargeable gain you make because of the letting (calculated as a fraction of the gain – the fraction being the period of letting/divided by the period of ownership), whichever is the least.
Which means the chargeable gain is £44,145-£23,355 = £20,790.
We would utilise the capital gains tax annual exempt amount of £11,100 therefore the amount subject to tax is £20,790-£11,100 = £9690.
My partner and I are both higher rate tax payers therefore tax is charged at 28% therefore we would have to pay the inland revenue £9690x0.28 = £2713.20
Are my assumptions and calculations correct Tony?
Thanks - Paul
"First off, unless you are married or in a civil partnership and the property was put into joint names whilst it was your main home during your part-ownership of it, your share of any gain (if you do own half of it) will not be reduced by same amounts of main residence relief and letting relief as your partner's. Letting relief is up to £40,000 per part owner."
Am I understanding you correctly, I take it it wouldn't be beneficial to keep the property in my partners name for capital gains reasons? Other than that I think I need a clearer explanation of what your statement means.
Has the law changed with regards ***** ***** number of months qualifying for relief from 36 months to 18 months?
Is there a capital gains exemption amount of £11,100?
Were my calculations in my previous email accurate?
Thanks for the clarifications.
It's a minefield hence the reason to ask questions, apologies if my interpretations aren't accurate, and create frustration.