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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15976
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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If I have previously rented my property and I am now going

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If I have previously rented my property and I am now going to live in it for a year while I do it up to sell it - will I still pay CGT

Whether you will pay CGT or not depends on the history of your ownership and occupation of the property. If you let me have the following information, I will do some calculations for you:

1 The month and year you bought the property and what it cost to buy?

2 Did you move in as soon as you bought it? If not when did you move in, if at all? If you did move in, when did you move out (month and year)?

3 The month and year the property was first let. Has it been let more or less continuously since then apart from periods when there was a change of tenant?

4 The value of the property now.
Customer: replied 3 years ago.

1: February 2004 for £178,000

2: I have never lived there

3: It has been let on and off since I first bought it

4: I am intending to spend £100,000 on it and hope it will be worth around £500,000


Leave this with me while I draft my answer. It will take a while.

Hi again.

If you sell the property in February 2016 for £500,000, you will make a gain of £222,000 (£500,000 - £178,000 - £100,000). By that time you will have owned it for 145 months of which you will have lived in it for 14 months from January 2015 say, and it will have been let or available for let for 131 months to the end of 2014 say.

Only the cost of actual improvements to the property can be added to the cost for CGT purposes and you will need to retain the receipts and invoices for that expenditure. The costs of general repairs and maintenance and other expenses you would normally deduct from rental income or incur as an owner occupier cannot be claimed.

The gain for the period the property is your main home will be exempt from CGT. You will also get an additional 4 months worth of gain as exempt as the gain for the last 18 months of ownership of a property which has been your main home is given as tax free even if you were not living there. That accounts for £27,559 (£222,000 / 145 x 18). The remaining taxable gain of £194,441 will be that part of the letting period gain which will not be covered by the last 18 months of ownership (£222,000 / 145 x 127).

As the property will have been both your main home and let you will be entitled to letting relief which will be the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 18 months of ownership of the property which will be £27,559 and

3 the letting period gain which will be £194,441.

Letting relief of £27,559 will reduce the remaining gain from £194,441 to £166,882 and the annual CGT exemption for 2015/16 of £11,100 will reduce it further to leave you with a net taxable gain of £155,782.

There are two rates of CGT, 18% and 28%. The rate or combination of rates you will pay will be dependent on the level of your income in the tax year of disposal of the property. Assuming you sell the property in the 2015/16 tax year, one of the following will apply:

1 If your income in 2015/16 including the taxable gain is £42,285 or less, then all the taxable gain will be taxed at 18%.

2 If your income in 2015/16 excluding the taxable gain is more than £42,285, then all the taxable gain will be taxed at 28%.

3 If your income in 2015,/61 excluding the taxable gain is less than £42,285 but more than £42,285 when you include the taxable gain then part of it will be taxed at 18% and part at 28%.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

So, my net taxable gain will be £155,782. If my annual income is 8,500 then I will pay tax on the total of these two amounts?

If your annual income for 2015/16 is £8,500, that will be covered by the personal allowance of £10,500 so you will pay no income tax.

Of the taxable gain of £155,782, £31,785 will be taxed at 18% (£5,721.30) and £123,997 will be taxed at 28% (£34,719.16). Your total CGT liability will be £40,440.46.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

How do I prove I lived in the house or how to HMRC prove that I didn't? I have paid council tax the entire time...

HMRC are unlikely to ask that question but you need to have all your credit card bill, bank statements, car insurance documents etc sent to the property. Changing your home address with HMRC and other organisations you deal with will help.
Customer: replied 3 years ago.

Sorry - I promise this will be my last question! What I meant to ask is how to HMRC prove that I wasn't living their in the past - do they check credit reports etc.? 40k is a lot to lose!

It's not up to HMRC to prove that you didn't live there in the past, it's up to you to back up what you will be claiming to be the case in your tax return, if you are asked to do so. You said you let the property so the periods that the property was let will be out of bounds to you.

HMRC have access to many sources of information but whether they query your return or not is down to pot luck though they do look closely at property transactions.