Do I need to pay capital gains tax here?

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    Do I need to pay capital gains tax here?

    Long story short, my mother purchased a council house back in 2003 for £16,000. At the time, the house was probably worth £90k but I believe there was some council scheme back then to encourage council tenants to get on the property ladder - there were discounted sale options (Glasgow, Scotland).

    Anyway, I lived in that house since 1994 till now.
    My mother moved to Spain in 2012 to retire and signed the House over to me (deeds) - I paid her the remainder of her very cheap mortgage (£3k) and that was that.

    I am now looking at purchasing a new home with my partner. (Joint mortgage).

    my question is, if I keep this house and eventually sell it in 1-2 years time, am I liable to pay capital gains tax on the increase in value from its last purchase price in 2003 to now? Or based on its valuation from when I took ownership of it in 2012? How does it work?

    it might not be financially viable to try and keep it for a few years and sell later on if I’d need to pay capital gains tax on 80% of the value of the house. It’d be inconvenient to have to sell the house first as I’d rather find a place for myself and then sell this house later... but if I HAVE to sell the house before buying a second home, to avoid paying the tax, I will.

    #2
    Yet another story about governments giving away money paid over by hardworking taxpayers. Sigh......

    But no, if you lived there are your primary residence since you owned it, CGT would not be payable. If you move out for 2 years (having lived there for 9 years)_ you pay (potentially) CGT on 2/11ths of the gain since 2012. There are certain letting reliefs which may or may not apply in a few years.

    There is the small matter of 3% extra stamp duty on your next hose which is likely to be more than the CGT...

    Comment


      #3
      Okay, so that I understand it correctly, if the house is now worth £90k and the last house price was £16k in 2003.

      The rise in value has been about £74k. If I buy a second home to move into and rent this out for a couple of years - say 5 for talking sake.
      If I then decide to sell it at that point, I will have owned it for 14 years, living in it for 9. So I pay CGT on 5/14 of the gain? (£26.4K) meaning 28% of that £26.k or about £7,400?

      I didn’t know the proportion of the time spent living in it vs letting it out was used in the calculation. If that’s correct, that’s much better news. I just thought once you buy a second home, if I then sold this a year later, I’d need to pay 28% CGT on the full £74k gain.

      I assume I’d pay 28% CGT due to my own annual income tax being at the higher rate.

      Comment


        #4
        Save yourself a lot of hassle and sell up before/while buying the new property

        Comment


          #5
          Originally posted by Kr335 View Post
          Okay, so that I understand it correctly, if the house is now worth £90k and the last house price was £16k in 2003.

          The rise in value has been about £74k. If I buy a second home to move into and rent this out for a couple of years - say 5 for talking sake.
          If I then decide to sell it at that point, I will have owned it for 14 years, living in it for 9. So I pay CGT on 5/14 of the gain? (£26.4K) meaning 28% of that £26.k or about £7,400?

          I didn’t know the proportion of the time spent living in it vs letting it out was used in the calculation. If that’s correct, that’s much better news. I just thought once you buy a second home, if I then sold this a year later, I’d need to pay 28% CGT on the full £74k gain.

          I assume I’d pay 28% CGT due to my own annual income tax being at the higher rate.

          And would this not be covered under the CGT allowance of roughly £12k per year? So I’d pay nothing if the total tax due was £7,400? Or have I misunderstood.

          Comment


            #6
            No, you pay nothing if the total GAIN is under 12k. You will pay about 7K in tax.

            There are various letting reliefs but I would not assume they will exist in 2026. Also I would not assume the CGT exemption of 12K will exist in 2026 either (it probably won't) and CGT rates might be 40% by then (or 80% if we have a Labour Government).

            And you will pay 3% extra stamp duty on your other purchase.

            Overall (and especially given the severe risk to ordinary people of a potential change of Government) I would definitely sell it now.

            Comment


              #7
              Originally posted by Kr335 View Post
              Okay, so that I understand it correctly, if the house is now worth £90k and the last house price was £16k in 2003.

              The rise in value has been about £74k.
              You are only accountable for any gain since you acquired the property in 2012.
              So the market value in 2012 will be used to calculate any gain when you sell it.

              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


                #8
                Originally posted by jpkeates View Post
                You are only accountable for any gain since you acquired the property in 2012.
                So the market value in 2012 will be used to calculate any gain when you sell it.
                Yes, sorry, missed that. You may be best to pay a surveyor to produce a retrospective valuation if one was not done at that time. But that also changes your denominator of number of years, so may involve a higher initial value, but more tax overall.

                Comment


                  #9
                  1. Your mother paid £16K for the house in 2003 ( 18 years ago) and the property is now valued at £90K, which is a capital gain of £74K.

                  You have owned the property ( market value at £53 K ) since 2012 ( 9 years ago ) and your capital gain is £74K x 9/18 = £37K.

                  If this property has been your home ( owner occupied ) since 2012 , there is no capital gains tax to pay.


                  2. If you rent out the property for 5 Years and then sell , making a capital gain of £50K

                  Your total capital gain is £50K and your taxable capital gain = £50K x 5/14= £17.85K

                  Your tax bill = £17.85- £12.3K ( personal allowance ) = £5.55K x 0.28 = £1.55K

                  Comment


                    #10
                    Thanks everyone.

                    So irrespective of the fact the house was originally purchased in 2003 for £15-16k (it was a discounted purchase) - the value for the purposes of measuring the gain, is taken from the value of the house at the moment of transfer to me in 2012, which would have likely been around £90k???

                    That means whenever I do sell this house, (at which point it’ll be a second property) - I will only pay CGT on the increase in value over that £90k mark to what it sells for? (I expect it to sell for around £95k).

                    That means no CGT whatsoever as the rise in value is £5k and thus below the £12k CGT allowance?

                    that can’t be the case though as two different people who have commented (thank you) have suggested around £1.5k and £7k as payable gains tax.

                    sorry for the repeated clarification attempts. I appreciate all of your help so far.


                    Comment


                      #11
                      Originally posted by Kr335 View Post
                      So irrespective of the fact the house was originally purchased in 2003 for £15-16k (it was a discounted purchase) - the value for the purposes of measuring the gain, is taken from the value of the house at the moment of transfer to me in 2012, which would have likely been around £90k???
                      Yes, you only pay tax from the gain while you own the property.

                      That means whenever I do sell this house, (at which point it’ll be a second property) - I will only pay CGT on the increase in value over that £90k mark to what it sells for? (I expect it to sell for around £95k).
                      Correct.

                      That means no CGT whatsoever as the rise in value is £5k and thus below the £12k CGT allowance?
                      Correct.

                      that can’t be the case though as two different people who have commented (thank you) have suggested around £1.5k and £7k as payable gains tax
                      They were wrong.

                      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


                        #12
                        How was it valued in 2012? - a 5% increase in price over the past 18 years seems a tad unlikely and will seem so to HMRC. There are a few areas of the country that prices have actually fallen though over that time.

                        Also how was that change of ownership documented - actual change at land registry?.

                        Comment


                          #13
                          Hi Andrew,
                          it was not valued in 2012. but based on sold listings of the same type/size of house on my same street - they are roughly all the same price between £87-91k around that timeline.
                          My neighbours house also sold for £92k in 2019. That’s the last comparable I have for this style house on this street (they’re 2 houses down from me).

                          yes, the change in ownership is documented in the title registered with the Scottish equivalent of Land Registry.

                          Comment

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