CGT - 36 Month Rule ?

[Landlord9467]

Hi there,

I wonder if someone can help explain whether I have to pay any CGT.

I bought my first and only residential property in mid 2005 and lived there until 2007, after which it was rented.

If I sell the property now am i exempt from paying any CGT considering the rental period has been less than 36 months?

I would really appreciate any advice and thank you in advance!

Kind Regards,

[JamesTWD]

The answer is 'yes you will be exempt as long as the property is sold within 36 months of you ceasing to reside in the property. However, there is also a letting exemption which may cover any gain arising if the property is sold after the 36 month period. This exemption covers the lower of
a) an amount equivalent to the exempt part of the gain due to your residential occupation, or

b) £40,000

If you need anything else please ask.

[TaxationPete]

I concur with James, there will be no CGT to pay. However is this really the best time to sell the property. Do not be driven by the fact the CGT may apply. As james has said LR will kick in after the 36 months and will offset the CG for may be 5,6,7, or even more years depending on what house prices do. This is due to the fact that LR is capped at £40,000. Even then if you use up all those allowances and relief's and your personal capital gains allowance of £10,100 and you still have to pay 18% CGT on the gain it means you are making 82% profit. Regards Peter

[Landlord9467]

Hi Guys,

Thank you so much for the fast reply and advice.

You have answered my question and opened me to another view.

Can you explain to me how the CGT is proportioned after the 36 months period in the circumstance where there is still a gain after all allowances and reliefs.

For example:

Purchase price in 2005 = £600k
Sale price in 2009 = £1m

Once again thanks in advance for any help.

Best Regards,

[TaxationPete]

If you lived there for 2 years then rented it for 2 years then there is no CGT as it is completed covered by PPR. I do not understand your question. PPR excludes the last three yeras of ownership form any CGT calculation.Regards Peter

[Landlord9467]

Hi there,

I mean to say what would happen if i sold the the property after 36 months. Lets say for example after 5 years of letting since i last lived there.

Cheers,

[TaxationPete]

Ignoring letting relief which would have covered this then the CG apportionment if the period of residence plus 36 divided by the total period of ownership in whole months. Read IR 283 on the HMRC web site. Regards Peter

[Telometer]

When you sell it, calculate the gain, G.

Then add up

A. The number of months you owned it for
B. The number of months you lived in it, plus 36 (so long as this figure is no larger than A)

Then multiply G*[(A-B)/A] = T. That fraction is the taxable element of the gain.

Then deduct from T the lettings relief which is the lowest of:
T
40,000
G*B/A

That is your taxable gain, against which you can set your annual allowance and any capital losses you may have. Tax on that payable at 18%.

[TaxationPete]

Letting Relief is granted for actual let days, not void periods or and period that is covered by the PPR and it's 36 months extention. Regards Peter

[Landlord9467]

Hi Guys,

This has helped alot and i just wanted to say thanks so much!

Hope i can be of help one day