CGT - Moving out of flat to let

[RichieP]

I know there are CGT questions already answered in the forums, but I think this is a bit different to the other so I need to ask the question.

My wife and I are moving to another part of the country for family reasons. We have been paying the mortgage on our current flat for 7 years, and now intend to let it.

If we decide to sell it in, say, 10 years tiem, will we still be liable for CGT? In the meantime, we will be buying a house in our new location.

[Tax Accountant]

QUERY: My wife and I are moving to another part of the country for family reasons. We have been paying the mortgage on our current flat for 7 years, and now intend to let it.

If we decide to sell it in, say, 10 years tiem, will we still be liable for CGT? In the meantime, we will be buying a house in our new location.

ANSWER: I assume that you have been occupying your current flat as your only or main residence for 7 years since you bought it. If you now let it for 10 years before selling it, you would have owned it for 17 years altogether. The 7 years used as residence + final 3 years = 10 years will be exempt as PPR.

Therefore, you will have 10/17the gains exempted from CGT.

7/17ths gain will be chargeable but this will be reduced by lettings relief of upto £40,000 for each spouse (but not to exceed the gains exempted as PPR), taper relief of 40% of the remaining gains, and annual exemptions for each spouse (presently £8,500 each).

Ramnik

[RichieP]

Hear that whooshing sound? That's your reply going straight over my head.

Yes we have lived in it as out home for the past 7 years. Should we get it valued now, so that when it comes to selling, the CGT gets calculated on the profit?

Thanks for your time to reply by the way, I will try to get my head round what it means.

[Tax Accountant]

QUOTE: 'Hear that whooshing sound? That's your reply going straight over my head.'
REPLY: Please stop the whooshing sound as it is doing my head in.

QUOTE: 'Yes we have lived in it as out home for the past 7 years. Should we get it valued now, so that when it comes to selling, the CGT gets calculated on the profit?
REPLY: You do not need any valuations at all. The total gains over the WHOLE period of ownership is time-apportioned between exempt gains (10/17ths) and chargeable gains (7/17ths). Therefore, the gain is assumed to have arisen evenly over the whole ownership period. But the 7/17ths chargeable gains will be further reduced by lettings relief, taper relief and annual exemptions. Depending on the figures, you may not need to worry about CGT.

QUOTE: 'Thanks for your time to reply by the way, I will try to get my head round what it means'
REPLY: I am holding my breath. It would have helped if you had quoted the month and year of purchase, the cost price and the estimated value now. But you have already now had two bites of the cherry.

Ramnik

[RichieP]

Bought for 60k in May 1998. Now worth 200k. Rental income £953 pcm.

[Tax Accountant]

QUOTE: 'Bought for 60k in May 1998. Now worth 200k. Rental income £953 pcm.'

REPLY: Your gain is £140K which is all fully exempt as your only or main residence. This exemption continues for a further 3 years. Additionally, you and your wife will also be entitled to lettings relief of 2 x £40,000= £80,000 if you let the property at anytime before selling.

Basically you could sell in 10 years time for say £310 less cost £60 = Gain £250. Chargeable will be 250 x 7/17 = £100 less lettings relief £80 = £20 less taper relief 40% = £12,000 less annual exemption = NIL taxable.

Ramnik

[RichieP]

Ahhh. I think I get it now

Thanks for the hand-holding and bearing with me

[Tax Accountant]

You are welcome.

Ramnik