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I bought my house for £37,000 16yrs ago. I have rented it out since 2005.
If it sold it today for £80,000 what would I owe?
I think it will be worth less now than it was in 2005.
How does it work?
It used to work like this, so if it hasn't changed:
(Edit: Assuming you lived in it until you rented it.)
Until 2005 it was your Principal Private Residence, no CGT applicable. From 2005 it becomes a business asset, CGT now possible. If no increase in value since then(get local estate agents/valuers to do a 2005 valuation, pay them for this), no CGT to pay.
Aye. I think there's an allowance, maybe a taper relief also?
CGT is complicated - e.g. the amount payable depends on your total income; other things like shares sold etc will impact your total income in the year etc. Even marital status (I think you can transfer allowances between partners etc).
This seems to have an example in it not a million miles from yours:
http://www.which.co.uk/money/tax/guides/capital-gains-tax-explained/capital-gains-tax-and-property/
It uses a different approach from the one described above. I have no idea if one is right / wrong or if you can argue either is right. But applying their logic - rented for 7 yrs. You can deduct 3 off that for letting relief - so 4/16 ths of the gain is taxable. =0.25* 43,000 = 10,750. Your first 10,600 is tax free - so you'd pay tax on 150 (possibly as low as 18% so no great worry). Of course if you made more it could be more significant; if the dates are not quite exact then it could make a relatively big difference too.
The total gain is 43000. You have an allowance of around 10000 so that reduces to 33000. Divide is by the number of months that you owned the property, this is the capital gain per month. Now multiply the capital gain per month by the number of months that you lived in the house plus 36. Subtract this number from the 33000. This is your taxable capital gain so you multiply that by the capital gain tax rate and that is your tax.
There may be some other deductions that you can make too but those are case specific. The fact that the house is worth less than it was in 2005 is irrelevant.
This is how I worked mine out a few years ago and I assume that the rules haven't changed.
Oh yeah what poly said about the cgt, I've assumed that you haven't made any other capital gains in this year.
You'll have private residence relief for the time you lived there and if you haven't bought another property then the last 3 years will qualify too. Then you will also have letting relief and capital allowances for you and your spouse if applicable. You probably won't have anything to pay in the end but you'll still need to have the calculations available for HMRC inspection if required.
Get all your info together including purchase, selling costs and details of any capital expenditure to make the place let able. It wouldn't take long for an accountant to work out and no more than one billable hour.
Thanks for the advice.
Trying to decide wether to sell it then rent our house out (better area). Then buy a house with a bigger garden for us.
If I decide to go ahead, I'll get an accountant involved first.
You say our house, in joint names with you and the wife? Then you both get the 10300 exemption, so its 20600. I also think you get taper relief I reckon you'll pay nowt.
You know accountants are not massively expensive and will actually give good advice that you can rely on..
Taper relief ending in 2008. The Private Residence and Letting Relief will take care of the capital gains on the first property. Both partners are entitled to letting relief which will give you up to £80,000 to claim and you'll both be entitled to £10,600 capital allowances for the current year.
Mugboo, sounds the right way to do it and when you dispose of your current residence then you'll be in the same position again provided HMRC don't change the rules. If you keep an eye on the value of your current property that you're going to let then you'll know when to sell to avoid capital gains tax.
If Mugboo wasn't cover the CGT relief, like he seems to be... Could he sell the house he lives in now and move back into the old rental property. Stay there say 6 months, so that it would be his main residence and then sell it and not have any CGT to pay ??
[i]Could he sell the house he lives in now and move back into the old rental property. Stay there say 6 months, so that it would be his main residence and then sell it and not have any CGT to pay[/i]
He could but he would have to change bank accounts, etc, etc.
I'm in a similar position but couldn't quite stomach paying the tax man almost £10k so I'm continuing to rent the property out.
Whats the tax position if you gift the property to your child for example?
Probably best to speak to an accountant though, a creative one.
You can't gift to your children without paying tax, this was a loophole closed to stop people using their kids tax allowance. You can gift to your spouse though but must be done prior to the sale i.e. you can't take all the rental income yourself and at the point of sale say that the house is shared 50:50. As Poly said capital gains tax is now based on your income so you could transfer the rental income to your wife who isn't working and pay less tax but it would have to be a large capital gain after reliefs to allow for your own £10,600 capital gains allowance being wasted.
Moving back into the property will not change the calculation as it has been rented out at some point and if the letting relief doesn't cover the capital gain that exceeds private residence relief and capital allowances then tax will be paid. The last 3 years count as private residence if you lived there or not.
Don't need a creative accountant as the allowaces and reliefs are quite generous, just an accountant who knows what they are doing.