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bigduckontax
bigduckontax, Accountant
Category: Tax
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Do i have to pay capital gains tax on my main property i

Customer Question

Hi ,
Do i have to pay capital gains tax on my main property i have sold if i only invest just under half of the profit i made in another property iam going to buy out right to rent out ?
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.

If this property is your sole or main domestic residence then although the gain on disposal is liable to Capital Gains Tax (CGT) Private Residence Relief (PRR) applies. PRR relieves CGT at 100%. Many people do not realise that this happens when they move house as PRR is given automatically. If you buy a property to rent out then PRR does not apply save for the last 18 months of ownership when you are deemed to be in residence even if this is not the case. You would be liable to CGT 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 would be entitled to the non cumulative Annual Exempt Amount (AEA), currently 11.1K, to offset any gain and, if you occupied the premises before or after the letting period, to Lettings Relief (LR) up to 40K to further offset any gains.

What you do with the money is entirely your own concern. You can buy another residence although you don't have to or you can fritter away the proceeds on riotous living; it is entirely at your discretion.

I do hope that you have found my reply of assistance.

Customer: replied 1 year ago.
Hi Thank you for your reply .More info for you , the house was my main residence , i sold it on the 20th March 2015 for £875,000 , after paying back the outstanding mortgage , solicitors fees , estate agent fees i came out with £437,385.44, i bought a new flat with some of this money purely to rent out in July 2015 as an investment , total cost being £185,000 So do i have to pay capital gains tax on the whole of this amount of £437,385.44, at up to 28% , or capital gains tax minus the £185,000 ( the cost of the flat ) as i have invested the money again in property ?
Expert:  bigduckontax replied 1 year ago.

As the house was your sole or main domestic residence PRR applies and any gain is taxable but at 0%. You have no CGT liability and, in any event, PRR will be given automatically. You can forget all about CGT until you dispose of your new flat at some future, indeterminate date. What you did with the proceeds of the sale is utterly irrelevant.

The new flat will have an acquisition value of 185K plus any future improvements eg installation of double glazing, central heating, extensions etc, but not routine maintenance which is allowable against rental income.

Please be so kind as to rate me before you leave the Just Answer site.

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Customer: replied 1 year ago.
Keith ,
Thank you so much for the advice , this has been a great weight lifted of my mind .
Thank you again .
Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance.

Thank you for your support.

Customer: replied 1 year ago.
Hi again Keith ,
I just have another question , how does PRR work then ? how do you automatically get it ? who gives it ? how do i know if i got it ?
Expert:  bigduckontax replied 1 year ago.

Many people do not realise as the sell and move that they are liable to CGT as PRR knocks it out each time. It is usually given automatically by HMRC. Quite frankly the majority of people never know of the entitlement or its granting.

Customer: replied 1 year ago.
Hi again Keith ,
Sorry , So as it was sold in March 2015 , the previous tax yr , 2014/15 , now 18 months ago , i would have heard from HMRC if i did not receive PRR then ? is that correct ?
Expert:  bigduckontax replied 1 year ago.

You would have heard long since, I would not worry in the slightest, just keep my reply safe to fend off any long term enquiries.

Customer: replied 1 year ago.
Thank you so much for the advice Keith , your a star . Have a great weekend .
Expert:  bigduckontax replied 1 year ago.

And you!