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Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 14000
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I am considering selling my only ex rental property.

Resolved Question:

Hello! I am considering selling my only ex rental property. It was inherited from my parents in 2004. My sister and I own 50% each. Our parents had lived in it as a sole residence since 1979. We have rented out this property for the last 11 years. It was valued at £225,000 when inherited and is now, 11 years later, worth approx. £325,000. Could you estimate the amount of CGT we will have to pay. I am a pensioner paying basic rate tax. As is my sister.
Also, is it possible to live in the property, for 6 months as a main residence, and reduce CGT? With thanks Jill Flude
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi Jill Thanks for your question - I am Sam and I am one of the UK tax experts.The estimated Capital gains (without taking into account selling costs or any capital improvements) will be£325,000 sale value less£225,000 acquisitaion valueGain £100,000 - so for each of you £50,000Of the £50,000 the first £11,100 is capital gain free (as this is your annual exemption allowanceThis leaves £38900 liable to capital gains tax.If either of your incomes are in excess of £42385 a year then the gain will be charged at 28% = £10892 capital gains bill but if your income is less than this threshold, then some of the gain (equivalent to the unused basic rate band) will be liable at 18% and any remaining gain at 28%So if income was £32385 a year - then there would be £10,000 unused basic rate band - so the first £10,000 of the gain would be liable to 18% and the remining gain at 28% If either of you decide to live in this property, then it will reduce the gain for the time you actually live there - but it may well be that the property increases in value also during that time, but you have to move ALL aspects of your life into the property - so all personal possessions, change all drs, dentists - have all mail sent here, hook up for all utilities - But you would then qualify for consideration of private lettings relief, which can allow up to £40,000 additional capital gains relief BUT you would just get less than this due to the short time This is how it would work The gain would be the same as indicate above (assuming the property did NOT increase in value) So £50,000 then the 6 months you lived there of a possible 138 months of ownership would allow private residence relief of £50,000 x 6/138 = £2174So the gain for the time you lived there would reduce the remaining gain to £47826Then private lettings relief is the lesser of 1) The amount of private resident relief - which here would be £21742) The amount of gain left over after the private residence relief has been applied - so this would be £478263) £40.000So the lesser is £2174 - which is then deducted from the remaining gain of £47826 which would leave £45652 So you would save a max of 2174 x 2 = £4348 x highest rate of tax (assume 28% capital gains rate) = £1217.44Now compare this to moving in and out and the upheaval- only you can decide if this is worth it I am about to go out (in about 10 mins) and meet clients now, but will be back around 2pm - if you are happy to wait for a response to any follow up questions you might have. Thanks Sam
Customer: replied 2 years ago.

Hi Sam,

Thanks so much for the information!

Is there any way we can reduce the CGT? Using our husbands allowance etc? Both husbands are also basic rate tax payers.

Also, would there by any advantages in completing the house sale in 2015 or 2016? I'm aware CGT changed in 2014.

Thanks again for a great service!

Regards *****

Expert:  Sam replied 2 years ago.
Hi Jill Thanks for your further questions -Yes you can each transfer half of your half share to your husbands - however you would need to do this the tax year PRIOR to selling - or HMRC will argue you did this just to avoid capital gains and not allow the claim. Your transfer to spouses does NOT trigger a capital gain - but you will need to formally do this, so this will incur a cost to get the titles changed via the land registry. But this will then allow 2 x more capital gains exemption allowance which will save each of you up to £3080 So I would advise - that if you make the transfer now - ad then sell after 05/04/2016- then you will not have HMRC disallowing this position (but then any rental income also still arising has to be split 4 ways !) Let me know if I can assist any furtehr, but it would be appreciated if you would rate the level of service I have provided (or accept) Thanks Sam
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