how to calculate capital gain tax when we sell our letted property?

[daxu]

Hi,

We have a house that is let out at the moment.
The return isn't very good, so we are thinking of selling it.

When we bought the house at 2006, it was our main residence. The purchase price was 167500.

We moved out and let the place out at around 2010. If we put the house onto the market, we think the asking price will be around 200k.

I am wondering how the capital gain tax will be?
is it still like: 200k - 167500 - some fees?

If the tax is too high, we are thinking of put money into a new buy to let property (but this will only happen a couple of weeks or months after we sold the house). Do we still have to pay capital gain tax in this case?

Many Thanks

[lostinthenorth]

I'm not a expert by any means, but in a similar situation to you. As I understand it if you sell the property within 36 months of moving out, and as it was your main residence, you won't be liable for any capital gains.
If past 36 months there is a detailed calculation along the lines of total gain divided by number of years of ownership with only the time over the 36 months exposed for tax. I also understand that if this less than 40K no tax is payable due to lettings relief.

Hope this helps, but again I'm not an expert, I'm sure someone more knowledgable will be along shortly!

[King_Maker]

Unlikely to be any CGT due - depending on date of sale.

Have you read HMRC's Help Sheet HS283 on the subject?

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

[geoffg.landlordzone]

Here's a really easy and clear guide to CGT on property:

http://www.which.co.uk/money/tax/gui...-and-property/

[daxu]

many thanks.

We know much more now

[MickyV]

I read the Which guide you kindly provided the link for, and it says (for a parent continuing to live at their home until they die, when it is passed to their child):

Home example
For example, you inherit your father’s home when he died in August 2012.

At the date of death, it was worth £200,000.
You sell it six months later for £205,000 and can deduct selling costs of £3,000.
You have made a gain of £205,000 - £200,000 - £3,000 = £2,000 which falls comfortably within your annual allowance, so no CGT is due.


Imagine instead your father gave you the home 10 years earlier while he was still alive and continuing to live there.

At the date of the gift, the home was worth £140,000.
Again you sell six months after his death. In this case, you have made a gain of £205,000 - £140,000 - £3,000 = £62,000.
After deducting your annual allowance of £10,900, you have a taxable gain of £51,100. If you are already a higher rate taxpayer, the tax bill on this would be 28% x £51,100 = £14,308. If you are a standard rate taxpayer, you would pay CGT at 18% on the amount of gain that takes you to the higher-rate threshold and 28% on the rest.
In addition, the value at the date of your father’s death (£200,000) will be included in his estate for inheritance tax purposes, rather than the value at the date he gave it to you (£140,000).


I fear I am being a bit stupid, but that seems to suggest that:

If you inherit the home on his death on his death, there is (potentially) inheritance tax to pay on £200k, plus CGT on £5k.

If as part of his IHT planning, he gifts you the home 10 years before his death, then (according to the article) there is STILL (potentially) inheritance tax to pay on £200k, plus CGT on £62k.

So it sounds like, providing property goes up in value over the 10 years, it will always be worse to gift the property in advance than to wait until death. This just does not really sound right to me??

[King_Maker]

It is correct - for 3 reasons :

1. As the father continued to live in the property, it is a GWR (Gift With Reservation) and remains part of his Estate on his death.
2. No CGT uplift on his death, as it's the son's/daughter's property.
3. No PPR relief as it's not the son's/daughter's home.

A good example of how NOT do tax planning.

[MickyV]

Thanks King_Maker.
I presume there would be a similar situation if the father owned an investment property but arranged a GWR whereby he continued to receive the income until his death.

Is there any better way of parents passing on investment properties (which have increased in value since purchase) to their children before death? I imagine that CGT must be payable by the Parent at the time the property is gifted to the child, and then potentially IHT too if the parent dies within 7 years? So that could be a very poor way of passing investment properties on?