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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I bought my first property in 2002 at £112,500. We put

Resolved Question:

Hi. I bought my first property in 2002 at £112,500. We put the property on the market with a view to sell in 2008 at which point it was valued at £189,000. We moved into rental accommadation while the property was on the market and it fell through the selling process. We therefore decided to rent the first property out and buy a second home (our main home). We are now in the process of selling the first property that was rented out at the same price it was worth back in 2008 when we bought our second property. When working out to see whether there is any capital gains tax to pay do I need to work it out based on the amount I originally paid for the property when it was my main home (in 2002), or the market valuation rate that the property was worth when it turned into an 'assest' (in 2008)?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi. The market value when you first let the property is completely irrelevant as far as calculating the taxable gain is concerned. You start with the disposal price and deduct the costs of selling such as selling agent fees, legal fees etc and then deduct the purchase price and the costs of buying such as legal fees, survey fees, stamp duty, etc. The gain is treated as having accrued evenly over the entire period of ownership and the easiest way to split it between taxable and tax free parts is to start by dividing it by the number of months of ownership. You will be entitled to exemption from CGT for the period that you lived in the property plus the last 18 months of ownership regardless of the use to which is was put at that time. You will also qualify for letting relief which could be as much as £40,000 per part owner but it is entirely dependent on the facts and figures of your case. Take a look at HS283 for some examples of how you calculate the taxable part of the gain if there is one. You need to divide the gain between the part-owners before you start calculating the reliefs mentioned above. I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Thank-you this is clear. Is there also a CGT redemption amount? I.e. a gain amount you have to exceed before paying any CGT?

Expert:  TonyTax replied 2 years ago.
Every individual can make tax free gains of £11,100 in the current tax year.
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Expert:  TonyTax replied 2 years ago.
Thanks for accepting my answer.

Remember that you only acount for each month of ownership once. You won't get letting relief for any part of the last 18 months of ownership that the property is let as that period (the last 18 months of ownership) is a tax free period in any event.