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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15975
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a house which is usually rental but currently untenanted

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I have a house which is usually rental but currently untenanted and I am considering selling and am unsure of the tax implications and need advice! I got a valuation of 165k. The house was purchased as my home, sale completed 31/12/93, for 46k. I lived there til September 1999 and again between Feb 07 and May 09. The mortgage currently stands at 75,525.50. I would be very grateful for any advice you can give to help me understand and capital gains and other tax implications is if I sell. Thank you.

Can you tell me what periods the property has been let or available for let please.
Customer: replied 3 years ago.
Hi, was let/for rental Oct 99 to Jan 07, June 09 to 7/3/13 and then 9/9/13 to 9/2/15. Thanks, ***** ***** gains part of self-assessment process?

Leave this with me while I draft my answer.

Hi again.

Take a look at HS283 here for more information on the main residence and CGT.

When you calculate the capital gain on the sale of a property, it is treated as having accrued evenly over the entire period of ownership. This makes it fairly easy to calculate the taxable and non-taxable parts of the gain. My calculations assume you sell the property in May 2015 for £165,000 having paid £46,000 for it in December 1999, making a gain of £119,000. The buying and selling costs will reduce the gain further.

By May 2015, you will have owned the property for 257 months of which you will have lived in it for 97, it will have been let for 152 and it will have been vacant for 8.

The gain for the period the property was your main home will be exempt as will the gain for the last 18 months (previously 36 months) of ownership. That accounts for £53,249 (£119,000 / 257 months x 115 months). The remaining gain of £65,751 is split as to £63,899 to that part of the letting period not covered by the last 18 months of ownership (£119,000 / 257 x 138) and £1,852 to that part of the vacant period not covered by the last 18 months of ownership (£119,000 / 257 x 4).

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

1 £40,000,

2 the sum of the gain for the period that the property was your main home and the gain for the last 18 months of ownership, £53,249 and

3 the gain for that part of the letting period not covered by the last 18 months of ownership, £63,899.

Letting relief of £40,000 will reduce the remaining gain of £65,751 to £25,751 and the annual CGT exemption of £11,600 will reduce it further to leave you with a net taxable gain in 2015/16 of £14,151.

There are two rates of CGT, 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 of disposal of the property. If that happens in 2015/16, one of the following scenarios will apply:

1 If your income in 2015/16 including the net taxable gain is £42,385 or less, then all the gain will be taxable at 18%.

2 If your income in 2015/16 excluding the net taxable gain is more than £42,385, then all the gain will be taxable at 28%.

3 If your income in 2015/16 excluding the net taxable gain is less £42,385 but more than £42,385 when you add the net taxable gain, then part of the gain will be taxed at 18% and part will be taxed at 28%.

You need to be aware that the tax rules may change after the General Election.

You will need to disclose the disposal of the property in a self-assessment tax return.

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

Customer: replied 3 years ago.
Thank you, ***** ***** I understand, but just to clarify. Is this right...In this scenario I would count only the £14,151 as additional income (could keep the rest untaxed) and pay 18% of that amount in tax to hmrc as part of my self-assessment assuming I am under the income threshold. Does the self-assessment do the calculations you have shown are needed for you or do you have to get it worked out and then just show the net taxable gain on the form? Thanks again for your clarification!

The taxable gain on which you will pay tax will be £14,151 but it will change if you sell the property earlier or later than May 2015.

If you look at the capital gains pages SA108 here you will see that there isn't much to put into the property gain section. However, you should send a calculation with it. You can use my answer to put something together.

You can do the tax return online but you still need to provide a calculation. Register for self-assessment here. Read about self-assessment online here and see the deadlines for the 2014 tax return here. If you sell the house by 5 April 2015 (the date you exchange contracts is the tax point) add a year to the deadlines. If you sell it after 5 April 2015, add two years.

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