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bigduckontax
bigduckontax, Accountant
Category: Tax
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I bought a house to live in but let it out after a couple of

Customer Question

I bought a house to live in but let it out after a couple of months and lived with family in UK. The property was let for approx. 9 years. I have subsequently lived in the house for a year. The property has appreciated by approximately £55k. Will capital gains tax be due on the profit when I sell it?
If so,
is there a tax-free allowance per year of ownership on the appreciation amount or is the tax-free allowance for the one year in which the property is sold only? Thank you for your advice.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Yes, will will be liable for Capital Gains Tax (CGT) to the gain on sale, but not on the entire gain as you are deemed to have lived in it for the 18 months of ownership irrespective of the facts. Private Residence Relief (PRR) is extended to cover this period. There is an Annual Exempt Amount (AEA) of 11.1K to offset gains, but this is a 'Use it or loose it' concession and does not accumulate from year to year. You would appear to have owned for say 110 months. 18 off (PRR entitlement) that is 92 so 92 / 110 (say 84%) is exposed to CGT, say 46K gain. Knock off the AEA leaves 34.9K taxable at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale. Worst case scenario is a tax bill of some 9.8K. If you occupied the property before you let it out than you will, in addition, be entitled to Lettings Relief (LR) up to 40K depending on the level of rents received. LR might reuce your liability to zero, but prior occupation before letting is essential. I do hope that I have helped shed some light on the situation.
Customer: replied 1 year ago.

Thank you for your advice. Could I just check I have understood correctly, please? The annual exempt amount applies whether you lived in the property before letting or not whereas Lettings Relief only applies if you occupied it before letting. I owned it for a couple of months whilst maintenance was carried out prior to letting. Would this be sufficient time to qualify as prior occupation?

Also, is the tax payable as soon as the sale completes or can it be included in the tax return for the year of sale, please?

Expert:  bigduckontax replied 1 year ago.
The AEA applies to all gains irrespective of occupation, but does not accumulate from year to year. The only time you do not receive it is if you are in receipt of Entrepreneurs' Allowance which does not occur in your case.
LR applies if you have lived in the property either before or after the letting period or both; see TaxAid's advice quoted in my original answer.
Gains for CGT are declared on your normal annual self assessment tax return and any tax due is payable by 31 January in the year after ie for a 15/16 gain CGT is not payable until 31 January 2017.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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