Unsure on how much CGT I will owe - moving into my BTL

[AOK]

Looking for a bit of advice please regarding CGT. Story goes as follows...

I currently own my own home and have some BTL's. I have owned my home for 4 years, it is my primary (and only) residence. As such, no CGT is due.

I am looking to sell my home and move into one of my BTL's early next year. I would actually live there, transfer all my correspondence there, not live anywhere else, not have tenants etc. It would become my primary (and only) residence.

The BTL in question was purchased in 2008 for £A. It is currently worth about £B.

If I were to live in it for X years and then sell it for £C, will I have to:

1. pay CGT on £C minus £A
2. pay CGT on £B minus £A (regardless of what £C is, as CGT should only be applicable on gains made whilst it was an investment)
3. not pay CGT at all as it has been my main and only residence for X years.

If '3' (which I highly doubt!!!)... does X have any relevance?

I'm happy to pay tax where its due, but I just want to make sure I'm gearing myself up for the right amount / course of action.

Thanks all, happy to try give more info if required.

[AOK]

I should add, at no point have I lived in this BTL. When purchased in 2008 it was immediately rented out and has been throughout.

[Countdown]

It's 2. Plus If you live in the property for less than 3 years then just bear in mind that the last 3 years are tax free.

[L4CON]

Countdown said:

It's 2. Plus If you live in the property for less than 3 years then just bear in mind that the last 3 years are tax free.

It could also be option 3 depending on how much letting relief he will be able to claim when he sells.

[AOK]

If it is Option 2, who is to say what the property was worth (£B) next year if I don't actually sell it, rather move into it? Surely you only know what its worth once you sell it?

I could just act dumb surely and 'estimate' its current value at only £10k higher than the purchase price? (it is a lot more than that in reality)

[sumo69]

Countdown said:

It's 2. Plus If you live in the property for less than 3 years then just bear in mind that the last 3 years are tax free.

The last 18 months are tax-free - it changed in April.

[Countdown]

sumo69 said:

Countdown said:

It's 2. Plus If you live in the property for less than 3 years then just bear in mind that the last 3 years are tax free.

The last 18 months are tax-free - it changed in April.

Mea culpa

[Eric Mc]

The 36 month rule changed to 18 months in following the 2013 Budget.

You will also be eligible for Private Lettings Relief. This applies to properties which have, as well as been a let property, also at one time or other, been your Principal Private Residence.

What do you think all those MPs were up to?

[Truckosaurus]

AOK said:

If it is Option 2, who is to say what the property was worth (£B) next year if I don't actually sell it, rather move into it? Surely you only know what its worth once you sell it?

I could just act dumb surely and 'estimate' its current value at only £10k higher than the purchase price? (it is a lot more than that in reality)

Get it inspected and valued by a RICS Surveyor ?

[gibbon]

I could be wrong, but i was under the belief they do not 'mark to market', they will use the full price change but only charge you for the % time you rented it out.

[Eric Mc]

CGT is normally paid on the actual "gain" i.e. the difference between the original cost and the actual sale proceeds (minus allowable expenses etc and reliefs).

Whatever gain figure is arrived at, it is then time apportioned between the time is WAS your main residence and the time it WASN'T your main residence.
The time it WAS your main residence is the actual time PLUS the freebie 18 months.

So if you owned a property for 20 years, lived in it for five years and made a gain on sale of £100,000, the gain would be apportioned as being 6.5/20 non-chargeable, 13.5/20 chargeable.

The fact that it was rented has no bearing on calculating the main residence/non main residence apportionment.

If it WAS rented, the gain would be subject to the extra Let Property Relief - which cannot exceed £40,000.

[AOK]

Eric Mc said:

The 36 month rule changed to 18 months in following the 2013 Budget.

You will also be eligible for Private Lettings Relief. This applies to properties which have, as well as been a let property, also at one time or other, been your Principal Private Residence.

What do you think all those MPs were up to?

Thanks Eric. So having done some reading about the PLR it only gives you about £40k relief? Is this in addition to the personal gain allowance?

I think it might help to add the numbers as the gain is quite a bit more than £40-50k

Summer 2008 - purchased for £330k and rented out.
Rented out non-stop until March 2016 when I will move in.
Currently worth about £550k
Expecting to live there about 2 years (as my main residence), although I can stay there longer or shorter if advantageous.

Thanks, Arthur (Emma says hi by the way!)

[AOK]

Eric, looks like we were both typing at the same time. Your last post really clears things up for me... I think!

Let's say I bought September 2008, moved in March 2015 and sold September 2016

That would mean - residence time is 18 (+18) months is 3 years. By deduction, the rented time is 5 years.

So let's say in Sept 2016 I sell the property for £550k.... I'd be liable to pay CGT on 5/8 of the overall £220k gain.

So that's £137,500. And then I can take off £40k and £11k off that?

Edited by AOK on Wednesday 28th October 13:11

[Eric Mc]

AOK said:

Thanks Eric. So having done some reading about the PLR it only gives you about £40k relief? Is this in addition to the personal gain allowance? YES.

I think it might help to add the numbers as the gain is quite a bit more than £40-50k

Summer 2008 - purchased for £330k and rented out.
Rented out non-stop until March 2016 when I will move in.
Currently worth about £550k
Expecting to live there about 2 years (as my main residence), although I can stay there longer or shorter if advantageous.

Thanks, Arthur (Emma says hi by the way!)

I don't do calculations.

I know a few Emmas so I'll say "Hi" to Emma - whichever one it is.

[rfisher]

I make the rented time 6.5 years.

You need to live in it for 5 to sell with no cgt to pay.

HMRC do the calculation on total number of days, so make sure you have proof of all dates.

If it's in more than 1 name cgt allowance is doubled and liability is split between both owners.

Small print stuff - I may be talking twaddle. Ask a professional if you're not sure.

Question for Eric: if you sell a property that's not your main residence, but no cgt is due, do you need to tell HMRC on your tax return?

Edited by rfisher on Wednesday 28th October 14:54

[Eric Mc]

rfisher said:

I make the rented time 6.5 years.

You need to live in it for 5 to sell with no cgt to pay.

HMRC do the calculation on total number of days, so make sure you have proof of all dates.

If it's in more than 1 name cgt allowance and liability is split between both owners.

Small print stuff - I may be talking twaddle. Ask a professional if you're not sure.

Question for Eric: if you sell a property that's not your main residence, but no cgt is due, do you need to tell HMRC on your tax return?

Yes.

Any property that is not or has not been your main residence will be subject to Capital Gains Tax, even if the net gain ends up not being taxable.

There is a requirement that any capital disposal where the sale proceeds, i.e. the gross amount actually received - not the gain, exceeds £44,000 then it must be returned to HMRC.
So, if you sold a property for £110,000 but the net gain was only £10,000, which would result in no tax being due as £10,000 is below the personal CGT allowance, you would still have to notify HMRC that you did have a capital disposal in the year and provide them with your calculations. The normal way to do this is through the Self Assessment system.

On a further note, HMRC does not set a time limit for how long somebody has to physically live in a house for the main residence exemption to be triggered. In some circumstances, a house can be deemed to have been the main residence even though the taxpayer NEVER lived there.
And there have been cases where a taxpayer actually did stay in the property in an attempt to trigger main residence relief but failed on the basis that it was not his home.

Edited by Eric Mc on Wednesday 28th October 15:12

[Ozzie Osmond]

Truckosaurus said:

Get it inspected and valued by a RICS Surveyor ?

Yes, you're going to need to prove the value at the relevant date and unless there has been a sale on the open market (which in this instance there hasn't) that means getting a proper valuation done at the time. Alternatively if it's just one house in a row of identical houses you could possibly get away with referencing other sales in that row which took place around the relevant date. Some risk attached though. Best to put these things beyond doubt even though there will be cost involved. It will also help you fix the date when the change of status occurred.