Discussion
Hi gents, sorry if this has been covered before…
I currently live in a property I own, with a small Mortage and approx 180ks worth of equity. I’ve owned it for ten years now.
Am thinking of buying another property and renting the flat out, rents are silly where I live so it kind of makes sense to me..
My question is, the flat has appreciated quite a bit over the last ten years and I’d imagine it will continue to do so, I know you don’t pay CGT on your primary residence but you do on a rental, so if I were to rent it out and then sell it in say another ten years, how would the CGT work? Would I just pay it on any further appreciation from when I stopped being my home or on the lot?
Hope that makes sense, thanks in advance
I currently live in a property I own, with a small Mortage and approx 180ks worth of equity. I’ve owned it for ten years now.
Am thinking of buying another property and renting the flat out, rents are silly where I live so it kind of makes sense to me..
My question is, the flat has appreciated quite a bit over the last ten years and I’d imagine it will continue to do so, I know you don’t pay CGT on your primary residence but you do on a rental, so if I were to rent it out and then sell it in say another ten years, how would the CGT work? Would I just pay it on any further appreciation from when I stopped being my home or on the lot?
Hope that makes sense, thanks in advance
Yes - you are correct. The question has been asked here, many, many times 
The main thing to consider when calculating the gain at the time of disposal is that you are not taxed on the full gain (i.e. the simple difference between the purchase price against the sale price). You are allowed to reduce the gain in proportion to the total time you owned the property versus the time it was your main residence.
Simple scenario-
Buy property - 1/1/2000 - Cost £100,000
Sell property - 31/12/2023 - Sold £250,000
Gain - £150,000
Total period of ownership is 24 years - expressed in months as 288.
Stopped being the main residence on 1/1/2020. Therefore it was not the main residence from 1/1/2020 to 31/12/2023 i.e. 48 months. The gain is based on the 48 months that the asset was not the main residence. In addition, an extra 9 months of ownership is excluded from the "gain" period so in this example that drops "gain" period to 39 months.
Therefore, in this example the gain is -
£150,000 x 39/288 = £20,312.
You also get a personal Capital Gains Tax allowance. Sadly, this is now only £3,000. So the taxable gain is £17,312.
The rates of tax are 18% basic and 24% higher rate.
How much of the gain falls into either or both CGT tax bands depends on your other income in the tax year the property is disposed of i.e. salary, rental income, interest income etc.
Note that the property stops being the Main Residence the day you formally moved out. It's not based specifically on the date the property became a Buy to Let. There is some flexibility in arriving at the exact date when the property actually stopped being the Main Residence. There have been plenty of tax cases where this has been a major factor.
The main thing to consider when calculating the gain at the time of disposal is that you are not taxed on the full gain (i.e. the simple difference between the purchase price against the sale price). You are allowed to reduce the gain in proportion to the total time you owned the property versus the time it was your main residence.
Simple scenario-
Buy property - 1/1/2000 - Cost £100,000
Sell property - 31/12/2023 - Sold £250,000
Gain - £150,000
Total period of ownership is 24 years - expressed in months as 288.
Stopped being the main residence on 1/1/2020. Therefore it was not the main residence from 1/1/2020 to 31/12/2023 i.e. 48 months. The gain is based on the 48 months that the asset was not the main residence. In addition, an extra 9 months of ownership is excluded from the "gain" period so in this example that drops "gain" period to 39 months.
Therefore, in this example the gain is -
£150,000 x 39/288 = £20,312.
You also get a personal Capital Gains Tax allowance. Sadly, this is now only £3,000. So the taxable gain is £17,312.
The rates of tax are 18% basic and 24% higher rate.
How much of the gain falls into either or both CGT tax bands depends on your other income in the tax year the property is disposed of i.e. salary, rental income, interest income etc.
Note that the property stops being the Main Residence the day you formally moved out. It's not based specifically on the date the property became a Buy to Let. There is some flexibility in arriving at the exact date when the property actually stopped being the Main Residence. There have been plenty of tax cases where this has been a major factor.
Eric, I know you've answered this question many times but I just want to say thank you for coming on this forum to answer these types of questions and also that you do it so clearly and succinctly for the layman. It is much appreciated.
Often there are questions which I think I can answer but then I think, no be patient, Eric will come along and explain it more clearly plus I will probably miss some small point.
Often there are questions which I think I can answer but then I think, no be patient, Eric will come along and explain it more clearly plus I will probably miss some small point.
There are a number of costs that it can be possible to deduct to further reduce your CGT bill. So make sure you keep a record of estate agents fees, solicitors fees, moving costs, any improvement (but not maintenance) costs.
There is a government page with a CGT calculator on and info for guidance https://www.gov.uk/tax-sell-property/work-out-your...
There is a government page with a CGT calculator on and info for guidance https://www.gov.uk/tax-sell-property/work-out-your...
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