CGT on Second Property


G

gingerdazza

Hi

I purchased a flat in 2000 for £50k. Lived there for 4 years.
Remortgaged it for £100k with Buy To Let mortgage in 2004 to free up
capital to purchase new house which I have lived in since. At time flat
was worth £120k. Still worth around £120-125k

If I sell my flat now, or in future, what is my CGT liability?
I heard something about a 3 year rule that would possibly mean I dont
have to pay CGTY if I sell within 3 years - true?
If I were to move back into the property for a period of time, would
that remove my CGT liability? What sort of time period?

Thanks
 
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R

Ronald Raygun

I purchased a flat in 2000 for £50k. Lived there for 4 years.
Remortgaged it for £100k with Buy To Let mortgage in 2004 to free up
capital to purchase new house which I have lived in since. At time flat
was worth £120k. Still worth around £120-125k
OK, for CGT purposes, the value at the time of change of status is not
relevant. The gain on which tax would be based would be £70-75k if you
sold now.
If I sell my flat now, or in future, what is my CGT liability?
If now, none. If later, it depends.
I heard something about a 3 year rule that would possibly mean I dont
have to pay CGTY if I sell within 3 years - true?
Yes. More precisely, all the gain is always taxable, but if the place
has been your main home during 100% of the time you owned it, then
you get 100% relief and so pay nothing. If it has been your home for
only 70% of the time, you only get 70% relief, etc.

But, if it has ever been your main home, then the last 3 years of
ownership count as though it was your home during them too, even if
it wasn't. So if you live in it for the first 4 years, then use it
as a second home for 3, then sell, you still get 100% private residence
relief.

Also, if you rent it out, and you get some PRR, then you also get
letting relief for any periods not covered by the PRR during which
it was let (but the LR has a ceiling of £40k or the amount of PRR,
whichever is lower).

In practice this means that if, say, you waited until 2010 to sell,
you would have 10 years of ownership of which 7 qualify for PRR and
3 for LR. Suppose the value then were as much as 200k, then the gain
would be 150k. 70% of this would be free due to PPR status, and 30%
would be eligible for LR. But 30% of 150k is 45k, and the LR ceiling
is 40k, so £5k would be taxable. But this is below your annual
exemption, so there will still be no tax to pay.
If I were to move back into the property for a period of time, would
that remove my CGT liability? What sort of time period?
Well, there isn't any liability yet which would need removed, nor will
there be for some time. Once there is, moving back in won't really help
unless you do so for more than 3 years, unless you subsequently move out
again before selling. This is because the last three years qualify for
PPR status already, and moving in doesn't therefore improve your position.
 
G

gingerdazza

............one last question. Do I need to notify the IR, or nominate
my flat for these PRR and LR reliefs, or are they automatic and
available whenever I seel it?

Thanks
 
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R

Ronald Raygun

...........one last question. Do I need to notify the IR, or nominate
my flat for these PRR and LR reliefs, or are they automatic and
available whenever I seel it?
After you've sold it you complete the capital gains pages of your
tax return. You make the claims for relief there.
 

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