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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15917
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I own my own house. However, I am presently living with my elderly mother in her house. I

Resolved Question:

I own my own house. However, I am presently living with my elderly mother in her house. I am considering renting out my own house as I do not want to leave my house vacant while I am staying with her. I bought my house approx 30 years ago for 25k. The house is valued now for approx 130k. If I decide to rent my house now then sell it in a couple of years, what might I expect regarding capital gains?
Will I have to pay capital gains on the difference in the value of my house since I bought it 30 years ago or do I get an evaluation now then pay capital gains on the difference of the value I sell it for when I do decide to sell?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Take a look at HS283 for information on the main residence and CGT, in particular Example 9. The value of the house when it is first let will be irrelevant for Capital Gains Tax purposes. Your gain will be calculated by deducting the purchase price and associated costs of purchase from the net of disposal expenses sale proceeds. The gain on the sale of a property is treated as having accrued evenly over the entire period of ownership. The gain covered by the period when the property was your only or main home will be exempt from CGT as will the gain for the last 18 months of ownership regardless of the use it is put to in that period. If is is let, you will be entitled to letting relief which will be the lesser of: 1 £40,000,2 the sum of the gain for the period that you lived in the property and the gain for the last 18 months of ownership and3 the gain for that part of the letting period not covered by the last 18 months of ownership. If you still have a taxable gain after deducting the reliefs you are due, the first £11,100 of net gains you make in any one tax year are exempt from CGT. There are two rates of Capital Gains Tax, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year you dispose of the property. Look here for information on how to calculate the CGT if you need to. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
My dilemma is whether it would be financially viable to rent my home for a couple of years or, because of a resulting high level of CGT due to renting, to sell now. If I am reading the information you have sent correctly, it looks as if I would be better to sell. At a rentable value of approx £600 per month before tax, this would not cover the amount of CGT I would have to pay. Would you agree?
Customer: replied 1 year ago.
I am retired now so income is at the lower rate.
Expert:  TonyTax replied 1 year ago.
If you let the property for two years and then sell it for £130,000, there will be no CGT. Out of 32 years of ownership, 30 of the 32 years of gain (£98,438) will be exempt from CGT due to main residence relief. The gain for the last 1.5 years of ownership (£4,922) would also be exempt from CGT. That would leave the gain for 6 months out of 32 years exposed (£1,640) and that would be covered by letting relief of £1,640. These figures are based on a gain of £105,000 (£130,000 - £25,000). The rental income would be subject to income tax at 20%.
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Customer: replied 1 year ago.
Thank you for your help Tony.

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