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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Tony, thanks help on my last question. Basically

Resolved Question:

Hi Tony, thanks for your help on my last question. Basically a variation on the same question again, on another property that I am letting out.
I have a flat that I moved out of 10 months ago which I am renting out and am deciding whether to sell it now or keep it rented out for another 10 years.
So I would like to know what Capital Gains tax I would have to pay if I sold it in:
A. 1 years time
B. 10 years time
A. I have owned the property for 130 months
I lived in it for 120 months
I have been renting it out for the last 10 months.
The purchase price was £220,000 and I expect to sell for £550,000 if I sold it now.
B. For this exercise can we assume that I keep it rented out for the next 10 years and that I would be able to sell it for £900,000 (just a guess!).
I would appreciate if you could calculate the CGT I would pay on both scenarios but also show the calculations.
Kind Regards
Pete
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Leave this with me while I draft my answer. It will take a while.
Expert:  TonyTax replied 1 year ago.
Hi again.

1 If you sell the property in a year, by that time you will have owned it for 142 months of which you wll have lived in it for 120 and let it for 22. The gain for the period that you occupied the property will be exempt from CGT as will the gain for the last 18 months of ownership. That accounts for £320,704 (£330,000 / 142 x 138). The balance of the gain of £9,296 would normally be taxable but it will be covered by letting relief of £9,296 (the lesser of £40,000, £320,704 and £9,296). There will be no CGT to pay.

2 Tax rules can and do change. Bear that in mind.

If you sell the property in ten years, by that time you will have owned it for 250 months of which you wll have lived in it for 120 and let it for 130. The gain for the period that you occupied the property will be exempt from CGT as will the gain for the last 18 months of ownership. That accounts for £375,360 (£680,000 / 250 x 138). The balance of the gain of £304,640 is taxable but will be reduced by £40,000 of letting relief (the lesser of £40,000, £375,360 and £304,640) to £264,640. If the CGT exemption is £20,000 say, you will be left with a net taxable gain of £244,640.

There are two rates of Capital Gains Tax, 18% and 28%. The rate or combination of rates that you will pay will be determined by the sum of your income and the net taxable gain in the tax year the property is sold. At worst, the CGT will be £68,499.20 (28%).

As I said above, there may be a completely different set of CGT rules and rates in place in ten years so you should view the figures with that in mind.

Take a look at HS283 here for more information on CGT and the main residence.

I hope this helps but let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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