Selling a rented property (tax)
Discussion
Ok, so the Mrs had a house before we married. Purchased in 97 and lived in until 2006. Rented for the last 5 years.
As I read it, any gains are tax free for the period it is a main home plus the last 3 years.
So 1997 to 2006 = 9 years + 3 years = 12yrs tax free.
The gain over the whole period is in the region of 140k over 14years.
I also understand that gain is assumed equal over the whole period so 10k pa gain = 20k maximum exposure.
I then believe there is something called letting relief which is up to 40k so that means no tax is due when we sell?
Can anyone confirm that, or are my google skills weak?
Trying to figure out if it's worth selling to move up the property ladder and not cripple ourselves with a too high mortgage.
As I read it, any gains are tax free for the period it is a main home plus the last 3 years.
So 1997 to 2006 = 9 years + 3 years = 12yrs tax free.
The gain over the whole period is in the region of 140k over 14years.
I also understand that gain is assumed equal over the whole period so 10k pa gain = 20k maximum exposure.
I then believe there is something called letting relief which is up to 40k so that means no tax is due when we sell?
Can anyone confirm that, or are my google skills weak?
Trying to figure out if it's worth selling to move up the property ladder and not cripple ourselves with a too high mortgage.
Looks correct to me, but you will both need to complete tax returns/include it on your return if you already do one to claim the reliefs.
Always a good idea to get a professional opinion on something like this though - it would not cost too much when compared ot the gain you are making.
Always a good idea to get a professional opinion on something like this though - it would not cost too much when compared ot the gain you are making.
Bullett said:
Ok, so the Mrs had a house before we married. Purchased in 97 and lived in until 2006. Rented for the last 5 years.
As I read it, any gains are tax free for the period it is a main home plus the last 3 years.
So 1997 to 2006 = 9 years + 3 years = 12yrs tax free.
The gain over the whole period is in the region of 140k over 14years.
I also understand that gain is assumed equal over the whole period so 10k pa gain = 20k maximum exposure.
I then believe there is something called letting relief which is up to 40k so that means no tax is due when we sell?
Can anyone confirm that, or are my google skills weak?
Trying to figure out if it's worth selling to move up the property ladder and not cripple ourselves with a too high mortgage.
Is the rental property in joint names or in the wife's name only?As I read it, any gains are tax free for the period it is a main home plus the last 3 years.
So 1997 to 2006 = 9 years + 3 years = 12yrs tax free.
The gain over the whole period is in the region of 140k over 14years.
I also understand that gain is assumed equal over the whole period so 10k pa gain = 20k maximum exposure.
I then believe there is something called letting relief which is up to 40k so that means no tax is due when we sell?
Can anyone confirm that, or are my google skills weak?
Trying to figure out if it's worth selling to move up the property ladder and not cripple ourselves with a too high mortgage.
You are essentially correct. The period in which the house was lived in by the owner is exempt from Capital Gains Tax. An additrional three year period is also added on to the actual main residence period. However, when working out the main residence plus there year period you need to be pretty precise and carry out the calculation on a "day" basis.
In other words, the period is calculated by adding up the actual days from the date of purchase to the date the house stopped being the main residence - which MAY not be the date it started being rented out.
You then add on the actual days that make up the three year period. And don't forget that there will be some leap years in the periods you need to be taking into account,
Once you have worked out the actual number of days that make up the main residence period plus the extra three years, you go ahead and calculate the gain on the disposal. The gain is the original purchase price of the property PLUS any legal fees, stamp duties, estate agent's fees etc incurred at the time of purchase. You can also add onto the original cost any capital enhancement costs spent on the property during its period of ownership. These costs DO NOT include general repairs and maintenance costs but expenditure of a major type - such as extensions, upgrades to windows etc. They also do not include any property costs which you may have claimed tax relief on when computing the taxable rental properties. You can also add onto the original cost and legal fees any other charges incurred during the process of selling the property.
Once you have calculated the net gain, you then apply the time apportionment exercise where you split the gain between the time it was the main residence and the total period of ownership. The remaining part of the gaimn will be the part that will be taken for Capital Gains Tax purposes.
Next you apply any Commercial Lettings Relief if appropriate. And finally, you offset the Capital Gains Tax annual personal allowance, currently £10,600 per person.
If the property is owned 50/50, then the taxable gain is split 50/50 and each individual can offset their own £10,600 allowance.
Gassing Station | Finance | Top of Page | What's New | My Stuff