Sale of house....... CGT question?
Discussion
Situation is as follows:-
A friend of mine has his own house worth around 300k...
He is getting married in October, and his wife (to be) also has her own house worth around £225k......
His house is mortgage free
There is a small(ish) mortgage on hers..
As my friends house is larger, they are planning to move into his,... as there is more room for their (nearly grown up) children (they will both be on second marriages)
The plan was for her to sell up completely and release the cash, however she is now thinking of renting it off for a while, as a mutual friend has offered around £500pm to live in it for a year or so, so obviously this will provide an additional income...(Which of course will be subject to tax)
So, the question is:- Would she be liable for any capital gains tax as it could be construed as a "second home", if she sold it in, say two years, even though it is NOW her only residence, and would have been for the vast majority of the time of her ownership.
A friend of mine has his own house worth around 300k...
He is getting married in October, and his wife (to be) also has her own house worth around £225k......
His house is mortgage free
There is a small(ish) mortgage on hers..
As my friends house is larger, they are planning to move into his,... as there is more room for their (nearly grown up) children (they will both be on second marriages)
The plan was for her to sell up completely and release the cash, however she is now thinking of renting it off for a while, as a mutual friend has offered around £500pm to live in it for a year or so, so obviously this will provide an additional income...(Which of course will be subject to tax)
So, the question is:- Would she be liable for any capital gains tax as it could be construed as a "second home", if she sold it in, say two years, even though it is NOW her only residence, and would have been for the vast majority of the time of her ownership.
If she's doing it for a bit of extra income then I would suggest that she gets an agent round to give her a realistic valuation of what she should be charging. £500 a month sounds rediculously cheap to me for a house worth £200+. If it is only worth £500 a month and it's only for a year I don't think I'd bother personnally.
sjj84 said:
If she's doing it for a bit of extra income then I would suggest that she gets an agent round to give her a realistic valuation of what she should be charging. £500 a month sounds rediculously cheap to me for a house worth £200+. If it is only worth £500 a month and it's only for a year I don't think I'd bother personnally.
That's what I thought ,it's a nice house on a decent estate in a good area, I would have thought £700/800pcm would be more like it.SimonMaidenhead said:
If she keeps her house in her name when they're married,and husband to be does the same with his, when she comes to sell it'll be the only property registered at the land registry in her name and therefore her primary property with no CGT to pay?
As noted above, the rules could all change. At the moment you have a 3 year period in which to sell, after this time there is a calculation on what CGT is payable.Wings said:
Did one read the article in the Times on Friday concerning CGT on private homes, now DC is such a maverick at the moment, that anything is possible with CGT.
That happens in the US, unless the proceeds are being used to fund another home.In the OP's question, even allowing for the current 3yr grace, is CGT payable based on the original purchase price or only on any increase in value since the home ceased to become the owners main home? I would have hoped it's the latter.
Deva Link said:
In the OP's question, even allowing for the current 3yr grace, is CGT payable based on the original purchase price or only on any increase in value since the home ceased to become the owners main home? I would have hoped it's the latter.
Where's Eric when you need him?!CGT is payable on the difference between the purchase price and the sale price. However....... No CGT is payable for the period of your residency as your main home, plus, you have 36 months from the period it stopped being your principle private residence.
The calculation is not overly straighforward.
In the OP's case, she would have 3 years to sell (from moving out) and no CGT to pay. There is also lettings relief too. I found this which sort of explains:
"Roger buys a three-bedroom semi-detached house in North Wales for £50,000 in 1990.
He lives in the house for two years and then decides to move to a bigger four-bedroom detached house. He rents out the three-bedroom house for the next five years.
In 1997 he sells the three-bedroom house for £120,000. This means that he has made a capital gain of £70,000.
5/7ths of the profit is exempt from CGT because he is able to claim partial residence relief (two years PPR and the 36-month rule).
This means that he is only liable to pay CGT on the remaining £20,000 of chargeable gain. However, Roger is also able to claim private letting relief, and the amount he can claim is the lower of the following three values:
· £40,000;
· amount of private residence relief already claimed is £50,000;
· amount of any chargeable gain that is made due to the letting is £20,000 (assuming that property increased by £10,000 in each of the two years that the property was let).
This means that Roger is allowed to claim private letting relief of £20,000 as this is the lower of the three values.
Therefore the outstanding chargeable gain of £20,000 is cancelled out by this relief, which means that he has absolutely no CGT liability."
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