Capital Gains. If I move into my rented house after selling my own home.

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    Capital Gains. If I move into my rented house after selling my own home.

    Hello , Does anyone have an idea if I can reduce my CGT bill if I move into my rented house after selling my own home. Let me explain.
    I own and live in my home which is my main residence.
    I purchased a house for rental in May 2015 but did not have tenants until February 2016 due to extensive work being carried out.
    If I sell my home and ask my tenants to move out , then move into the rental in October to make it my main residence, will this reduce my tax bill compared to if I just sell it.?

    If we suppose I live in the rental house from October 2021 until April 2022 and that the house will sell for 420,000 and my profit will will be £110,000

    Hope I have explained clearly.
    Rgds and Tks
    Steve

    #2
    Provided it's really your main home, you would be entitled to the period of residence plus 9 months as a tax free gain.
    So compared with selling in October 2021, you would possibly pay less tax.

    But it's only likely to be about £3,000 (base rate tax payer) or about £6,000 (all higher rate).
    And if the property gains more value in the intervening six months or so it would be less of a saving.

    I've done most of that in my head, so you'd want to get someone to check the maths!
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Depends obvs on the CGT rules when you sell: We & you don;t know what they will be, only what we understand they are now (a bit like we know what the last set of lottery winning numbers were, but sadly not what the next lot will be).
      I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

      Comment


        #4
        Thank for coming back JP , Main reason for asking is there is no such comarison on HMRC website. Its always that landlord moves out of his main residence to make it a rental property. I even phoned HMRC a couple of years back and the person could not even give me a straight answer. Anyway, I work it out like this.......which is probably not textbook but here goes....... Lets assume I sell the house on the same date in both scenarios.

        Selling house without moving in . ......
        Profit after deductions £110,000
        personal allowance 12,570 (I will have 0 income)
        taxable amount = 110,00
        tax deductions.
        (50,270 - 12,570) = 37,700 X 18% = 6,786
        72,300 X 28% = 20,244
        Total = 27,030




        Moving in ..............
        total ownership 7 years = 72 months
        relief for 9 months meaning taxable for 63 months
        110,000 / 63 = 1527.7 p/mth
        taxable amount 63 X 1527.7 = 96,245
        tax deductions.
        (50,270 - 12,570) = 37,700 X 18% = 6,786
        58,545 X 28% =16,392
        Total = 23,178

        So I only save £3,852 in return for a lot of hassle. so for this amount its not worth it. Do you agree my calcs look correct. ?

        Comment


          #5
          Originally posted by steveeeee5 View Post
          So I only save £3,852 in return for a lot of hassle. so for this amount its not worth it. Do you agree my calcs look correct. ?
          I did it in days, so the figures aren't quite the same (and the personal allowance is £12,300), but they're close enough to yours.
          And I did the lot at 18% or 28%, rather than the right way, which is what you've done.

          I think it's a saving but not a lot of one.
          The only variable I can see is the price might change in the six months you live there.

          Also, when it comes to the real calculation, don't forget to deduct the costs of buying and selling the property (including the SDLT and estate agent fees).

          Good luck.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            There's no zero income tax rate for CGT but there is an annual CGT exemption of £12300 (currently).

            Edit; cross (pedantic) post with JPK.

            Comment


              #7
              Originally posted by jpkeates View Post
              Provided it's really your main home, you would be entitled to the period of residence plus 9 months as a tax free gain.
              I don't think the extra 9 months applies if it is self-occupancy AFTER rental. So the saving is far less than you have calculated.

              Comment


                #8
                Originally posted by boletus View Post
                There's no zero income tax rate for CGT but there is an annual CGT exemption of £12300 (currently).

                Edit; cross (pedantic) post with JPK.
                God , I keep forgetting that . yes so if I just sell, it actually makes my bill approx 14,700

                Comment


                  #9
                  Originally posted by AndrewDod View Post

                  I don't think the extra 9 months applies if it is self-occupancy AFTER rental. So the saving is far less than you have calculated.
                  Yes exactly what I was wondering and hence my call to HMRC. You have highlighted my suspicion about this only working the way HMRC give examples on gov website. Still no matter , I will not be going that way. Will happily pay the 14,700.

                  Comment


                    #10
                    By the way , thanks to everyone for their efforts in replying so promptly, boletus , jp, andrew, artfullodger , appreciate it. Rgds .. Steve.

                    Comment


                      #11
                      Originally posted by AndrewDod View Post
                      I don't think the extra 9 months applies if it is self-occupancy AFTER rental. So the saving is far less than you have calculated.
                      I don't think that's the case, but would be happy to be corrected if I'm wrong.

                      There are a number of examples in the tax manuals that explain that if you have been resident in the property "at any time" the last 18 months of ownership are always subject to PRR (which I am not sure is still the case) which would change the calculation, but not in any significant way in this particular case.

                      The 18 months can become 36 months in specific cases (relating to disability or care home residence).

                      https://www.gov.uk/government/public...letting-relief
                      This has been updated recently, but I think is probably out of date - the section on Letting Relief doesn't seem to be correct for 2021 tax returns.
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment

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