CGT where home has become BTL

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    CGT where home has become BTL

    As a newcomer to BTL, I am really struggling to understand the capital gains tax issues around my BTL property.

    I have lived in property A for 4 years as my home and only property. It has increased in value from the purchase price of £700k to an estimated £1000k at today’s value. I am now buying Property B and will live there as my main home and intend to let out Property A and possibly sell it in the future.

    I am concerned about my exposure to CGT when I sell property A in (for example) 5 years. Let’s say it’s worth £1200k in 5 years time. What sum will I be assessed for capital gains tax? The guidance that I have read on HMRC and other websites has confused me. When I sell will I be liable for CGT on the entire £500k increase in value or just the increase in value for the period I have rented it out ? How is the interim value point assessed. What evidence will i need to produce for any relief?

    thanks

    #2
    It will depend on what CGT rules there are then: Any old looney swivel-eyed fruitcakes could be in charge passing g*wd knows what legislation in 5 years time... Or the EU bring in legislation changing CGT across Europe...

    I would ensure I had property valuations from say local estate agents etc (in writing) and lots of documentary evidence about you having lived there (eg utility bills, etc etc..)

    Why not 'phone those nice HMRC chaps & ask their advice??
    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


      #3
      Have you read HMRC's Help Sheet HS283 on the subject?

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

      Comment


        #4
        Thanks for this – I understand that “private residence relief” means the portion you are NOT charged CGT on. So in my little example I would get 4 years relief for the period I actually lived there plus a further 3 years (36 months) for the final 3 years. So 9 years of ownership and £500k profit would result in me being liable for CGT at 2/9 of the total which would be £111. Then less there is my 10k CGT allowance for the year (providing that does not change). So I would be asked to pay CGT on £101 at 28% (higher tax rate) so in this case £28k.

        Sorry to drag everyone into my arithmetic but if anyone could face checking this example then it would give me great comfort. I am not expecting a cast iron guarantee and I realise that the rules will be different in a few years but am I barking up the right tree based on todays rules?

        Comment


          #5
          The legislation changed on the 6th of April and you now only get 18 months extension not 36.. You would however get letting relief for each qualifying ownerof up to £40,000.
          It looks like this :
          Purchase 700,000 14/05/2010
          Disposal 1,200,000 14/05/2019
          Total Gain 500,000
          PRR 308,411 66 107
          Capital Gain 191,589
          Lett Relief 40,000 Qual Days 1278
          Net Gain 151,589
          CG Allow 11,000
          CGT 39,365

          CGT Bill 39,365

          Not bad for a Capital Gain of £200,000

          Regards Peter

          Comment


            #6
            Peter,

            Thank you very much for that. That worked example really nails it for me. Very reassuring and much better than the grim picture I was starting to imagine before joining this forum. I appreciate the time and effort that you have gone to to work through my example.

            regards
            Robert

            Comment


              #7
              I'm here too!

              Can you kindly put more meat on the bones of:

              PRR 308,411 66 107 and the 'qual day's part of Lett Relief 40,000 Qual Days 1278

              These confuse me so I'd really appreciate it.

              Thanks

              Comment


                #8
                PRR 308,411 66 107 is £ 308,411 relief apportioned by the residential period over the total ownership period, 66/107 months.
                Letting relief is the lowest of the PPR of the actual let days or a max of £40,000. Remember that the 18 months PPR relief can not be counted as let days.
                Regards Peter

                Comment

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