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Tony Tax
Tony Tax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Question 1. I rent 4 properties all with mortgages and have

Resolved Question:

Question 1.
I rent 4 properties all with mortgages and have a mortgage on my main home. I wish to sell one of the rentals and pay off all the mortgages. Will I still be liable for Capital Gains on the sold property even though the money will be used to pay off capital debt.

Question 2.
Do I pay Capital gains on a properrty that is my main home but was once rented? How long would I have had to live in it for it to qualify for exemption from Capital Gains.
Submitted: 1 year ago.
Category: UK Tax
Expert:  Tony Tax replied 1 year ago.
Hi.

1 The mortgages are irrelevant as far as calculating a taxable gain arising on the disposal of a property is concerned. Using the funds raised to pay off debt will make no difference whatsoever to your tax Capital Gains Tax position.

2 If a property has been both your main home and let, then part of the gain may be taxable. Whether it is or not will depend on the amount of the gain, how long you owned the property, how long you lived there and how long it was let. The gain for the period you live in a property will be tax free as will the gain for the last 36 months of ownership if you do not live in it for all or part of that period. You will also qualify for a further deduction from the gain called letting relief. Take a look at HS283 for more information on the main residence and CGT.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

 


 


Checking the HS28S I understand that I would not qualify as the property was let for a period of time.


 


To clarify your answer 2! are you saying that capital gains is payable for the period the property was rented minus 3 years;


 


e.g I have owned the property for 30years and it has been rented for the last 8 years do I pay capital gains for 5 of those 8? or even 5 of the 30yrs and how would I get the amount calculated? does the fact that it is returned as the main home make a difference or not.

Expert:  Tony Tax replied 1 year ago.
If you let me know the following I'll calculate the gain for you:

1 The month and year of purchase. Did you live there from day one?

2 The month and year that you moved out. Was the property let immediately and has it been let continuously since?

3 The purchase price and the current value of the property you wish to sell.
Customer: replied 1 year ago.


Sorry for delay I thought I already sent the information.


 


The property was purchased in March 1984 for £26000 lived there until September 2005. Completed a large extension in 1993 for £75000


with the exception of the odd months amounting to about 6 months, the property has been rented since 2005.


 


The resale value of the property is approx 800.000.


 


Can you also please provide a response to the last question of the last thread.


 


Thanks.

Expert:  Tony Tax replied 1 year ago.

Thanks for the additional information.

If you sell the property in December 2013 for £800,000 you will make a gain of £699,000 (£800,000 - £26,000 - £75,000). By that time you will have owned it for 356 months of which you will have lived in it for 257 and let it for 99.

The gain for the period the property was your main home is exempt from CGT as is the gain for the last 36 months of ownership. That accounts for £575,301 (£699,000 / 356 x 293). The remaining gain of £123,699 is that part of the letting period gain which is not covered by the last 36 months of ownership (£699,000 / 356 x 63).

As the property was both your main home and it was let you are entitled to letting relief which is the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 36 months of ownership of the property which is £575,301 and

3 the letting period gain of £123,699.

Letting relief of £40,000 will reduce the remaining gain of £123,699 to £83,699 and the annual CGT exemption of £10,900 will reduce it further to £72,799, the taxable gain.

There are two rates of CGT, 18% and 28%. The rate or combination of rates you will pay will be dependent on the level of your income in the tax year of disposal of the property. Assuming you sell the property in the 2013/14 tax year, one of the following scenarios will apply:

1 If your income in 2013/14 including the taxable gain is £41,450 or less then all the taxable gain will be taxed at 18%.

2 If your income in 2013/14 excluding the taxable gain is more than £41,450 then all the taxable gain will be taxed at 28%.

3 If your income in 2013/14 excluding the taxable gain is less than £41,450 but more than £41,450 when you include the taxable gain then part of it will be taxed at 18% and part at 28%.

Letting relief of up to £40,000 is available to each part owner of a property so long as they had an interest in the property during the period when it was let and it has been their main residence either in reality or by reason of marriage.

I hope this helps but let me know if you have any further questions.

Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14299
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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