A capital gains tax question....

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    A capital gains tax question....

    Used to think I knew about Capital Gains Tax but actually, I don't know about my own particular circumstances and I can't find any answers.

    I am umming and ahhing about selling a property that has always been let out - I lived in it for only two months. I've had it about 14 years and it has gained in value substantially over that period.

    My unusual circumstances are that a) I don't actually earn much money - my salary is only £21000 per year and b) I don't own a property that I live in. For the last ten years, I have lived with my best friend in his house. So I haven't got a property on which I could claim residential relief. Does this make any difference at all to the amount I'd pay?

    I did wonder about moving into my property - it would actually quite suit my circumstances to be there at the moment (I'd obviously square this with the mortgage company). If I did this for a period of time, would there be any benefit to my capital gains tax bill or would it be negligible given the amount of time I have owned the property and let it out?

    Also, I read about how you can carry forward gains from one year to the next - what does that actually mean? I have never really had any capital gains in my life to pay tax on and don't expect to in the future as I don't have any other significant assets.

    Please advise.

    #2
    Originally posted by JenniferP View Post
    My unusual circumstances are that a) I don't actually earn much money - my salary is only £21000 per year and b) I don't own a property that I live in. For the last ten years, I have lived with my best friend in his house. So I haven't got a property on which I could claim residential relief. Does this make any difference at all to the amount I'd pay?
    No

    I did wonder about moving into my property - it would actually quite suit my circumstances to be there at the moment (I'd obviously square this with the mortgage company). If I did this for a period of time, would there be any benefit to my capital gains tax bill or would it be negligible given the amount of time I have owned the property and let it out?
    If you genuinely lived in it for a couple of years (say) and the tax regime stays the same, you would get an extra 18 months of residential relief.
    Currently you would pay tax on the whole gain over your allowance, if you lived in it for two years you would then split the gain 14 / seventeen and a halves would be taxable (you'd have owned it for 16 years by then and you get an extra 18 months) and the other 3 and a half seventeen and a halves would be tax free.

    Whether this is worth living somewhere for two years isn't easy to know.

    The longer you live there the proportion of taxable to non-taxable gain increases.

    Also, I read about how you can carry forward gains from one year to the next - what does that actually mean? I have never really had any capital gains in my life to pay tax on and don't expect to in the future as I don't have any other significant assets.
    You'll be taxed on the gain in the year it's incurred - there are changed going through to compel you to pay the tax within 3 months of sale.
    You won't be able to carry this forward.

    There are ways to try to avoid paying CGT but they're hard work - you could sell some of the property every year to someone (easier if you're married for example) so you never get a taxable gain in any one tax year.
    But it takes ages, there are lots of other legal fees and it all gets a bit much.
    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


      #3
      Agree with above. You say you only lived there for two months so that would not count at all.

      Basically to put some numbers on it, and given that the gain itself would place you in a higher rate of tax,
      if you bought it for 100K and sell it for 400K you will have a gain of 300K.
      You could subtract from this various capital expenses (legal and building works that enhance rather than maintain, the stamp duty on the original purchase. Normally that would not amount to more than 20K or so, leaving 280K. You can also subtract your CGT allowance which we will call 10K here, leaving 270K. You will pay tax on this at 28% (a tax bill of roughly 76,000).

      You may find it cheaper to make it your real home for a decade or so, and find a nice warm husband.

      Comment


        #4
        I agree with the two post above.

        I just come to know, that a property accountant suggested a friend to "run" one of his BTL that he want to sell, as an holiday letting for at least 12 months, and after that sell it and pay only 10% CGT due to the entrepreneur tax relief, being the flat at that point considered a business etc.

        I pay my tax, I do not like loops to avoid it etc etc and if I want to sell I would pay what due etc etc but if you want you could get a deeper thought on the above.

        As ANDREW suggest, best would be to move in and make your residential home.

        Comment

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