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bigduckontax
bigduckontax, Accountant
Category: Tax
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I bought a house to rent out with cash in 2002 for £50k; it's

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I bought a house to rent out with cash in 2002 for £50k; it's now worth £150k. If I sell it what CGT can I expect to pay. There is no mortgage and I am a standard rate tax payer. Are there legal ways of minimising my tax liability; I could involve my husband in lowering the liability perhaps?
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. Benjamin Franklin once sagely observed that in life there are but two certainties, death and taxes. Furthermore UK tax legislation is moving against those who rent out property. Presumably you never lived in this house as your sole or main domestic residence and I will proceed on that assumption. Currently you have a possible gain of 100K. Remember that this gain is reduced by the purchase costs including Stamp Duty Land Tax (SDLT), any improvements eg installation of double glazing, central heating extensions etc, but not routine maintenance which is allowable against rental for Income Tax (IT) purposes. Also the disposal price is reduced by the cost of sale. The difference between the acquisition price, inflated as I have indicated, and the disposal price, netted ditto, is the gain. The capital gain of 100K will be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. You do have an Annual Exempt Amount (AEA) of 11.1K, not cumulative, to offset any gain. This would reduce your liability to 88.9K so a worst case scenario would be a CGT tax bill of a tad under 25K [ie all at 28%]. There is a relief called Lettings Relief (LR), but as you never lived in the house this is not available to you; a pity because up to 40K relief is possible. It is possible to reduce the gain by gifting half the property to your husband, inter spousal gifts being beyond the scope of UK taxation. However, this would only split the gain proportionately to the ownership period. Although your husband would also receive an AEA the conveyancing costs might well gobble up this and as the portion of the gain accruing to your husband is so tiny this game is almost certainly not worth the candle unless disposal is long deferred. I do hope that I have been able to shed some light on your situation.
Customer: replied 1 year ago.
If I use the money from the sale to buy another house to rent, will this reduce the liability; I will be renting to my son plus one other person?
Expert:  bigduckontax replied 1 year ago.
In such a situation Rollover Relief would often apply, but this relief merely postpones the liability until the ultimate sale of the new residence. There are limitations to this relief viz [source The Telegraph]: 'The relief applies to trades but HMRC does not regard a rental business as a trade unless it qualifies under the Furnished Holiday Lettings rules.' so regrettably this is not available to you. Benjamin Franklin strikes again! I am so sorry to have to rain on your parade.
Customer: replied 1 year ago.
How are the tax rates of 18% and 28% arrived at. How will I know what applies to me and how might it be split between the two rates? My income including state pension (I am 68) in the last tax year was £26,460.
Expert:  bigduckontax replied 1 year ago.
10107 will be at 18% [1819] and the balance, 78793, at 28% [22062], total CGT bill of the order of GBP 23881. Better than a poke in the eye with a sharp stick from my original estimate.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.