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bigduckontax
bigduckontax, Accountant
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I have 2 houses. my house in London is rented at the momement.

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I have 2 houses. my house in London is rented at the momement. I now want to sell it . I beleive I now need to live there for 2 years to avoid capital gains ?
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. Unfortunately your surmise is not correct. If you occupy it as your sole or main domestic residence for say two years then that time proportion of your occupation against the total ownership period will be entitles to Private Residence Relief (PRR) which gives 100% of relief. It will, however, open the door to Lettings Relief (LR) up to a maximum of 40K or your PRR whichever is the less. You will also have a non cumulative Annual Exempt Amount (AEA) of 11.1K to offset gains. After these reliefs the remaining balance will be taxed at 18% or 28% or a combination of the two rates depending on your UK income including the gain in the tax year of sale. The gain is the difference between the net selling price ie after deduction of selling costs including advertising and the acquisition price. The latter is the cost price plus buying costs including improvements and extensions. However, if you are resident in Brazil as is indicated and you have lived outside the UK for five whole tax years then the gain is computed from an April 2015 valuation which should substantially reduce your exposure to UK Capital Gains tax. I do hope that you have found my reply of assistance..
Customer: replied 1 year ago.
What is the best thing (cheapest) to do. I thought if it was my main residence then no tax to pay.
Customer: replied 1 year ago.
I bought the house for 90,000 and now it is 500,000. I have rented it for 5 years
Expert:  bigduckontax replied 1 year ago.
You have rented it out so even if it were your sole or main domestic residence you would still have a liability to UK Capital Gains Tax (CGT) reflecting the rental proportion of ownership. As I told you if you have not been resident in the UK for five full tax years before the sale then only the gain from an April 2015 valuation is taxable under this regime.
Customer: replied 1 year ago.
sorry, so if I live there for 2 years and then sell, what do I pay in tax
Expert:  bigduckontax replied 1 year ago.
Your gain is 500K - 90K = 410K. Of this 60 / 84 [71%] will be liable to CGT. From this deduct your AEA of 11.1K and lettings relief of say 11.9K will leave 387K exposed to the tax; worst case scenario is a tax bill of say a tad over 108K.
Customer: replied 1 year ago.
I found this on the net, is out of date or ?Whether you’ll pay taxes—and if so, how much—depends on how long you’ve been in your home. If you’ve lived there for at least two of the last five years, you can pocket up to $250,000 in profits tax-free; $500,000 for couples filing jointly. Anything over that, you’ll pay capital gains taxes.For assets owned less than a year, you’ll pay taxes at your regular tax rate. Long-term gains are taxed depending on your income; nothing up to $72,500 (couples), 15% up to $450,000, above that it’s 20%.
Customer: replied 1 year ago.
surely I can not pay 100,000 in tax just because I lived abroad for 5 years
Expert:  bigduckontax replied 1 year ago.
If you lived abroad for five whole tax years, note the limitation, not just five years, then you would only be liable for tax from a gain made from an April 2015 valuation. If you come back and live in it for two years then you could be taxed up to 28% on a 387K gain unless the five whole tax years rule applies. The source you quote is enumerated in dollars; in the UK we use pounds sterling. Are you sure that this is applicable to the UK, not the States?
Customer: replied 1 year ago.
sorry you are right, thats why i am confused.
I bought the house 1996 - 20 years ago
I have rented for 5 years
I am here in Brazil for 3 years aprox and before 2 years aprox in the uk.
I want my 18 year son to go to college in the uk for 3 years, then sell the house
So the family will return for 3 years
Then sell my house, tax ?
Customer: replied 1 year ago.
so the 5 years was just a coincidence
If I stay here for another 2 years then I pay on only the difference from 2015 valuation
seems strange
Expert:  bigduckontax replied 1 year ago.
On the assumption that you occupy for two years then the tax can be re-calculated as follows. Total ownership time 264 months. Total rental period 60 months. Thus only 60 / 264 = say 22.7% liable to CGT. Gain is 410K, taxable element is 93K. Deduct AEA and LR leaves 70K @ 28% =19.6K tax payable, worst case scenario. Your entitlement to the use of a April 2015 valuation is dependent on you being outside the UK for five whole Tax Years.
Customer: replied 1 year ago.
sorry, had to leave and I keep forgetting the time difference
ok thanks I now understand the first part.
Does this mean if I stay here 2 more years I can avoid the tax, if nothing changes
Expert:  bigduckontax replied 1 year ago.
Not necessarily; if you have the relevant five tax years out of the country before you return to re-occupy then the April 2015 valuation will be the acquisition base for the gain and you will very probably have no or minimal gain to tax. If you do not have the relevant time away then the position will be as I explained in my last post, worst case scenario say a tad under 20K of CGT payable..
Customer: replied 1 year ago.
Ok. I must say all of this is quite strange. First I never imagined the price of the house had incresed 500%. Then I only found out about CGT by luck. Then if I stay away for 5 whole tax years I will pay, with luck, minimal tax
Anyway thanks for the help
Expert:  bigduckontax replied 1 year ago.
Correct, being away five whole tax years is the key to minimal tax exposure in your case. Please be so kind as to rate me before you leave the Just Answer site.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.
Expert:  bigduckontax replied 1 year ago.
And your kind bonus.