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Joshua, Lawyer
Category: UK Property Law
Satisfied Customers: 25426
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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Hi I am considering selling my flat in London which I rent

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I am considering selling my flat in London which I rent out but want to check the CGT implications before I do as willing to move back into it if it reduces the tax due.
I bought the flat in 2002 for 145k, I then remortgaged it to a Btl mortgage in 2007 and rented it out as I bought another flat to live in. I have 2 mortages - one Btl on the London flat and a normal mortage on my current property. I have paid tax on the rental income each year.
Bought and lived in flat for 5 years, have rented it out for the past 6 years.
Expected profit £115k
From what I've read no CGT is due on the 5 years I lived there so CGT only applies to the 6 years I have rented it out but think also the last 3 years don't count as well - is this right ?
Means my calculation is as follows
115 K / 11 years ownership = £10,454 per year x 6 years renting - last 3 years = £31,363 liable for CGT . I have also read that there is a £40k allowance before CGT kicks in. Does this mean I am then not due to pay any CGT ?
Would be good to understand this before I decide to proceed and put the flat on the market.
Many thanks

Josh-2010 :

Thanks for your question. Please kindly RATE my answer when you are satisfied

Josh-2010 :

Is the property just in your name please or joint names?

Customer: Hi josh - both properties are in my name only
Josh-2010 :

thank you. In order to calculate your gain, you need to add up the total number of years you have owned the property and divide the gain by that number of years. . This gives you your yearly gain.

Josh-2010 :

from that figure, you can deduct those years in which you were resident in the property, and, if you are prepared to move back into the property prior to selling the same, you can deduct the three years prior as well.

Customer: That's the £115k figure - divided it by 11 years to give me the annual gain figure of £10,45
Josh-2010 :

this should leave you with three years worth of gains out of the 11 years you have owned the property based on what you say.

Customer: How long do I need to move back into the flat for in order for the last 3 years exemption to kick in ?
Josh-2010 :

from this figure, you can further deduct your annual unused allowance of £10,900 and private lettings relief. The maximum amount of Letting Relief due is the lower of:

the amount of Private Residence Relief due or

the amount of gain you've made on the let part of the property

Customer: Sorry - this is the bit I don't understand - what is the 40 k letting relief I've seen mentioned and does it apply in my case ?
Josh-2010 :

in order to obtain the last three years of principal private residence relief, you need to be able to show that you have cheated the property as your main home. There is no minimum or maximum period must do so, providing you can demonstrate that you have genuinely treated the property as your main home for a period prior to sale. . This is normally tested by what you have spent most of your time at the property for that period and that there is post been sent there and so on

Josh-2010 :

private lettings relief does applying your case because from what you say, you lived in the property before you rented it out

Josh-2010 :

Is there anything above I can clarify for you?

Customer: So - if I moved back in for 6 months then CGT would only apply on 3 years annual gains as per my £31,363 figure ? What would I be a
Customer: Oops - what would I be taxed on that sum ?
Josh-2010 :

based on what you say, you should be able to limit your capital gains tax exposure to a three-year period of ownership from which you can deduct your annual allowance and private lettings relief as above.

Josh-2010 :

the amount of tax that would apply on any remaining gain would be either 18% or 28% depending upon whether you are a basic rate or higher rate taxpayer

Josh-2010 :

You are allowed to earn £34,370 before you go into the higher rate tax bracket. If you earn more than this then you will pay 28%. If you earn less then you can allocate unused income tax band to your gain until you reach £34370 after which you pay 28%

Josh-2010 :

Does the above answer all your questions or is there anything I can clarify or help with any further?

Josh-2010 :

Is there anything above I can clarify for you?

Customer: Still not clear on the difference between annual allowance and private lettings relief - are they 2 separate things ? Does this make the following calculation correct . Total CGT exposure 31,363 minus 40k private lettings relief = no CGT to pay ? I am in the higher tax bracket but due to the lettings relief not sure this matters .
Josh-2010 :

They are two entirely separate things. You have an annual allowance of £10900. On top of this you have lettings relief you can apply. I will have a quick look at the calculation...

Josh-2010 :

Gain after applying annual exempt amount of 10900 is 104100

Remaining annual exempt amount is 0

Gain after applying losses brought forward of 0 is 104100

Divide by 11 years = 9463.64

Discount 5 years + 3 Years = 3 years remaining (9463.94 x 3) = 28,390.90

Discount private lettings relief £28,390.90


Gain = 0

Josh-2010 :

I cannot see that you will have a CGT liability if you are prepared to move in before sale.

Josh-2010 :

Is there anything above I can clarify for you any further?

Customer: That make sense to me - is ther a sensible amount of time I would need to live back in the Btl flat - is 6 months long enough ?
Joshua :

There is no statutory to find period of time. . What is required is that you can show that you have genuinely moved to the property and treated it as your principal residence prior to sale. , much less than a month or so would in my view be rather adventurous. the important issue is to be able to evidence that during whichever period you live there, you genuinely treated as your main residence by way of having post sent their and paying Council tax and be able to explain what the position was with regards XXXXX XXXXX other properties, you may own during that period to demonstrate you are not living there in the event that you receive an enquiry from the revenue. Keeping paperwork such as bills and seller to demonstrate the above is useful

Joshua :

is there anything else I can help you with?

Customer: That's great - think that covers everything
Joshua :

Thanks. If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with though please reply back to me though.

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