A capital gains tax property sale question
Discussion
Alpinestars said:
The planning tip is to take up residence in the old flat. There’s no test of how long, but as long as it’s your main residence, you’ll get an extra 3 years’ relief - total relief being the period of actual residence (original 10 years, plus 3 years, plus 9 months, plus the final residence period). You’ll lose the final residence period for your current property, but you’ll gain that back with the 3 year exemption.
Win win.
The additional three year “gratis” period is now reduced to just nine months. The three year rule changed quite a few years ago.Win win.
Scarletpimpofnel said:
Capital growth isn't all it's cracked up to be. Example if you had bought a rental a year ago for £1,000,000 and it had gone up by 5% to £1,050,000 and you now want to sell then that is a £50,000 gain. But inflation has been 10% so in fact your capital depreciated 5% BUT you still have to pay 28% of £50,000 in tax despite your capital actually having reduced.
Even over longer periods its possible a capital gain is in fact a loss when taking account of inflation but you still pay tax.
(Example simplified).
Measured over the longer term house appreciation has traditionally always been greater than inflation. Even over longer periods its possible a capital gain is in fact a loss when taking account of inflation but you still pay tax.
(Example simplified).
Your one year example doesn’t work due to stamp duty, but over longer term rental income is substantial. Also houses purchased for gain potential will deliver more than 5% as a rule, or you’d not bother. We bought two and they are up 26% in 12 months - but we get an 18% net FHL rental return against then
Irrespective if the alternative was £1m cash in the bank, you’d have got perhaps 2% versus 10% inflation and then more than likely you’d pay 45% income on the 2% received.
Eric Mc said:
The additional three year “gratis” period is now reduced to just nine months. The three year rule changed quite a few years ago.
S223(2)a is indeed 9 months now. I was referring to S223(3)a relief, which is 3 years.
In total, the relief for OP would be 3.75 years (plus actual) if the flat became his main residence for a short period before sale.
bennno said:
Measured over the longer term house appreciation has traditionally always been greater than inflation.
Your one year example doesn’t work due to stamp duty, but over longer term rental income is substantial. Also houses purchased for gain potential will deliver more than 5% as a rule, or you’d not bother. We bought two and they are up 26% in 12 months - but we get an 18% net FHL rental return against then
Irrespective if the alternative was £1m cash in the bank, you’d have got perhaps 2% versus 10% inflation and then more than likely you’d pay 45% income on the 2% received.
More importantly, your net return would be much lower. Your one year example doesn’t work due to stamp duty, but over longer term rental income is substantial. Also houses purchased for gain potential will deliver more than 5% as a rule, or you’d not bother. We bought two and they are up 26% in 12 months - but we get an 18% net FHL rental return against then
Irrespective if the alternative was £1m cash in the bank, you’d have got perhaps 2% versus 10% inflation and then more than likely you’d pay 45% income on the 2% received.
Alpinestars said:
S223(2)a is indeed 9 months now.
I was referring to S223(3)a relief, which is 3 years.
In total, the relief for OP would be 3.75 years (plus actual) if the flat became his main residence for a short period before sale.
I don't think that applies. If the house is not your main residence for less than 3 years that applies, but if you're 'absent' for 5 full years you can't treat that as a period of 2 years and then another of three. I was referring to S223(3)a relief, which is 3 years.
In total, the relief for OP would be 3.75 years (plus actual) if the flat became his main residence for a short period before sale.
silentbrown said:
Hammersia said:
Yes, I have made capital growth, not saying otherwise. I am saying that in spite of it now making no sense as an investment for income purposes, it is not worth me selling purely due to the tax bill it would incur.
I don't understand this mindset at all. Maybe you should have invested in a depreciating asset instead?We see such negative consequences of governmental misdirected greed in terms of big corporations land banking, stamp duty, pension caps etc. etc.
silentbrown said:
I don't think that applies. If the house is not your main residence for less than 3 years that applies, but if you're 'absent' for 5 full years you can't treat that as a period of 2 years and then another of three.
You absolutely can - see HMRC's guidance here https://www.gov.uk/hmrc-internal-manuals/capital-g...
In this specific case I’m not sure an extra 3 years relief by moving back in would make too much of a difference.
Ownership 1984 to 2023 is 39 years
Main residence for 10 (plus 0.75 allowance), 10.75/39 means only 27.5% is exempt, so CGT on 72.5% of gain.
By moving back in for 1 year, to ‘gain’ an extra 3 of exemption you’d be at 11+3+0.75/40 = 36.9% exempt, so CGT on 63.1% of gain.
Let’s say the property went from £30k in ‘84 to £280k in ‘23, a £250k gain.
72.5% of 250k is 181k taxable
63.1% of 250k is 158k taxable
Minus allowable costs, minus personal allowances, dropping to 6k from over 12k in a few days…. (although I think you can use your spouses allowance too)
Let’s say there’s £20k you can offset too from this.
Then it’s 18%/28% if 20/40% taxpayer
18% of £161k is £29k CGT
18% of £138k is £25k CGT
28% of £161k is £45k CGT
28% of £138k is £38.5k CGT
So based on my totally guessed gain figures, by having the hassle of moving back in just to get another 3 years, you’d only gain either 4K of 6.5k of tax saving, maybe.
My understanding may be totally off, I’m sure there may be a bit more to it all that I’ve missed/got wrong!
Ownership 1984 to 2023 is 39 years
Main residence for 10 (plus 0.75 allowance), 10.75/39 means only 27.5% is exempt, so CGT on 72.5% of gain.
By moving back in for 1 year, to ‘gain’ an extra 3 of exemption you’d be at 11+3+0.75/40 = 36.9% exempt, so CGT on 63.1% of gain.
Let’s say the property went from £30k in ‘84 to £280k in ‘23, a £250k gain.
72.5% of 250k is 181k taxable
63.1% of 250k is 158k taxable
Minus allowable costs, minus personal allowances, dropping to 6k from over 12k in a few days…. (although I think you can use your spouses allowance too)
Let’s say there’s £20k you can offset too from this.
Then it’s 18%/28% if 20/40% taxpayer
18% of £161k is £29k CGT
18% of £138k is £25k CGT
28% of £161k is £45k CGT
28% of £138k is £38.5k CGT
So based on my totally guessed gain figures, by having the hassle of moving back in just to get another 3 years, you’d only gain either 4K of 6.5k of tax saving, maybe.
My understanding may be totally off, I’m sure there may be a bit more to it all that I’ve missed/got wrong!
Craigybaby69 said:
What’s the situation if you sell your current main residence, move back into the original main residence and eventually sell that?
If you have rented it out at all then you get done for CGT for a percentage of the gain which is the the time that its been rented out as a percentage of how long you've owned it (with 9 months free)Whether you live in it before or after you rented it (or both) is irrelevant except that the longer you live in it overall (vs renting it) you will obviously decrease the percentage of the gain that's taxable .
I believe you are allowed to offset any improvements you have made though
Edited by Wombat3 on Tuesday 28th March 23:05
I used the online calculator when we sold a bungalow that my wife inherited in 2006. There was a £32,000 gain
But when our accountant did the calculation, there were 3 assessments and the value in 2015 was a significant date. The upshot was that she paid nothing as it came within her £12,000+ allowance for last year.
It looked like smoke and mirrors to me. We were resident for tax in France at the time, but i don't think that was the reason.
But it might be worth asking an accountant to do the calculation.
But when our accountant did the calculation, there were 3 assessments and the value in 2015 was a significant date. The upshot was that she paid nothing as it came within her £12,000+ allowance for last year.
It looked like smoke and mirrors to me. We were resident for tax in France at the time, but i don't think that was the reason.
But it might be worth asking an accountant to do the calculation.
rdjohn said:
It looked like smoke and mirrors to me. We were resident for tax in France at the time, but i don't think that was the reason.
It probably was because you were in France. When they changed the property CGT rules for non residents a few years ago they allowed non-residents to rebase the value at April 2015 levels as one of the calculation options. zbc said:
rdjohn said:
It looked like smoke and mirrors to me. We were resident for tax in France at the time, but i don't think that was the reason.
It probably was because you were in France. When they changed the property CGT rules for non residents a few years ago they allowed non-residents to rebase the value at April 2015 levels as one of the calculation options. bennno said:
Scarletpimpofnel said:
Capital growth isn't all it's cracked up to be. Example if you had bought a rental a year ago for £1,000,000 and it had gone up by 5% to £1,050,000 and you now want to sell then that is a £50,000 gain. But inflation has been 10% so in fact your capital depreciated 5% BUT you still have to pay 28% of £50,000 in tax despite your capital actually having reduced.
Even over longer periods its possible a capital gain is in fact a loss when taking account of inflation but you still pay tax.
(Example simplified).
Measured over the longer term house appreciation has traditionally always been greater than inflation. Even over longer periods its possible a capital gain is in fact a loss when taking account of inflation but you still pay tax.
(Example simplified).
Your one year example doesn’t work due to stamp duty, but over longer term rental income is substantial. Also houses purchased for gain potential will deliver more than 5% as a rule, or you’d not bother. We bought two and they are up 26% in 12 months - but we get an 18% net FHL rental return against then
Irrespective if the alternative was £1m cash in the bank, you’d have got perhaps 2% versus 10% inflation and then more than likely you’d pay 45% income on the 2% received.
But in the years inflation exceeds property appreciation then that is in fact a LOSS but I still get charged CGT.
My point is I don't mind paying CGT when I have a gain but not when in reality my capital has depreciated.
(I am only talking CGT here, rental income is NOT subject to CGT it is taxed in other ways).
Scarletpimpofnel said:
bennno said:
Scarletpimpofnel said:
Capital growth isn't all it's cracked up to be. Example if you had bought a rental a year ago for £1,000,000 and it had gone up by 5% to £1,050,000 and you now want to sell then that is a £50,000 gain. But inflation has been 10% so in fact your capital depreciated 5% BUT you still have to pay 28% of £50,000 in tax despite your capital actually having reduced.
Even over longer periods its possible a capital gain is in fact a loss when taking account of inflation but you still pay tax.
(Example simplified).
Measured over the longer term house appreciation has traditionally always been greater than inflation. Even over longer periods its possible a capital gain is in fact a loss when taking account of inflation but you still pay tax.
(Example simplified).
Your one year example doesn’t work due to stamp duty, but over longer term rental income is substantial. Also houses purchased for gain potential will deliver more than 5% as a rule, or you’d not bother. We bought two and they are up 26% in 12 months - but we get an 18% net FHL rental return against then
Irrespective if the alternative was £1m cash in the bank, you’d have got perhaps 2% versus 10% inflation and then more than likely you’d pay 45% income on the 2% received.
But in the years inflation exceeds property appreciation then that is in fact a LOSS but I still get charged CGT.
My point is I don't mind paying CGT when I have a gain but not when in reality my capital has depreciated.
(I am only talking CGT here, rental income is NOT subject to CGT it is taxed in other ways).
Alpinestars said:
Craigybaby69 said:
What’s the situation if you sell your current main residence, move back into the original main residence and eventually sell that?
3.75 years exempt on top of the period of it being your main residence. You gain an additional 3 years’ exemption by moving back in. All I can find (on .gov) is that you'll get relief
"If at any time you did (live in it), you get relief for the time you didn’t let it out or use it for business. You’ll also get relief for the last 9 months you owned the property. This is extended to 36 months if:
you’re disabled
you’re in long-term residential care
you sold it before 6 April 2014"
(My wife is an "accidental landlord" & her house is currently rented out while we live in mine)
Edited by Wombat3 on Wednesday 29th March 14:29
Edited by Wombat3 on Wednesday 29th March 14:31
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