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Sam, Accountant
Category: Tax
Satisfied Customers: 14199
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I have rented my house out for 18 months, I previously lived

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I have rented my house out for 18 months, I previously lived there for 15 years. My mortgage is £90,000 and I plan to sell this at £190,000. Will I have to pay tax?
Thanks for your question
When a property has ceased to be your main residence you have just 18 months to sell before capital gains becomes an issue.
So as we are at the 18 month stage you may have a capital gain consideration by the time the property is legally sold, but you will then also qualify for private lettings relief (x 2 if the property is in joint names) which can allow up to £40,000 additional relief.
Plus the first £11,000 of any gain is exempt as this is your annual exemption allowance. So I feel certain there will be no capital gains liability, buy you will need to advise HMRC once the sale is complete, as any exemption will be due to the private lettings relief and annual exemption allowance.
Customer: replied 3 years ago.

ok, so if it is over £91k in profit then tax would need to be paid?

- i.e £40k x 2 plus £11k is £91k allowance?

Thanks for your response
No it doesn't work like that - you don't get the full £40,000 lettings relief necessarily, just an amount up to - for example in your case - an approx. view is
If you were to sell after 20 months absence say - then you would have an initial gain of £100,000 from which you can deduct the costs to buy and sell (so legal and estate agent fees etc ) and the costs of any capital improvements such as new bathroom, kitchen etc
Lets estimate buying and selling costs at £10,000 - which brings the gain down to £90,000
Then you have private residence relief (PPR)which covers the time you lived there plus the last 18 months of ownership - so
Total ownership (approx.) 200 months
Time main residence 198 months
So 200/198 x £90,000 = £89,100 exempt under the private residence relief rules
This leaves £900 to consider
Then at this stage you have private lettings relief - PLR (assuming the property was let for all the 18 months and all rents declared to HMRC) which allows the lesser of
1) The amount of gain on which PPR was due - so £89,100
2) The amount of gain left over after PPR was applied - so £900
3) £40,000
As the lesser figure is 2) the amount of gain left after PPR has been applied, the private lettings relief (as a sole owner) is £900
This leaves NIL capital gain
So you do not even need to use your own annual exemption allowance -
But I can advise you can make a gain of approx. a further £50,000 and not be liable - but please note that as the value of the property increased, so would the length of ownership and time you were absent from the property - so this figure is a guide only.
Do let me know if you have any further questions on the information provided.
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