davyboy

My partner and I have a house which we have rented out for a while and informed everyone who needs to be involved.

I hope I am wrong, but do we have to pay 40% tax on the profit of the house if we sell it?

I really hope not, as thats the 911 out fot starters

MarkO

Did you buy the house to let, or did you live in it for a couple of years before letting it out? If it's the latter, you can probably avoid most of the CGT.

davyboy

Clare lived in it for 2 years prior.

Mungo

If it has been your prime permanent residence within the last three years you should not have to pay CGT on profit made from the sale.
PS It has been about 3.5 years since I did any tax exams...

paul w

You will have to pay tax on the amount the price has increased by while it has been let,prior to that any gain if you lived in the house is tax free.

You should have left some of clares details conected to the house and kept quiet about letting it out.The tax man wont come looking for you it is up to you to be honest or not.

Paul

MarkO

Ooooh. Tricky decision.

Clare

Is a very tricky decision! I don't know what to do, but I'm sure it will be OK. We'll see when I come to sell it

RB5320

as above, 40% CGT on the profit made while it has been rented, less your CGT allowance. There is also a sliding scale of "tax relief" depending on how long it has been rented out - the longer it has been rented the more discount you get. See an accountant - most will give you a free introductory session and can explain it pretty quickly.

Steve

camk

Flog it and say nothing....

blair

You don't say how long the house has been rented out for.

As Claire had the house as a principle private residence for 2 years these don't attract capital gains tax. There is a relief for the last 3 years of ownership too ( see http://www.inlandrevenue.gov.uk/pdfs...ains/ir283.pdf.

So if the flat has been rented out for less than 3 years after Claire moved out then there will be no CGT.

If it is for more than 3 years then you would need to work out the value of the property when it was first let out, take that from the selling price and this is the chargeable gain.

The last 3 years are tax free so take 3/x (where x is the no of years it has been let for)of the gain.

As RB5320 says there are also some sliding reliefs (and personal allowances) to reduce this further.

The link above gives a lot of info and there are more leaflets on the IR website.

Or, instead of doing complicated sums, you could just keep quiet as suggested

A

fast bloke

If you were to split up and your girlfriend was to move back in for a few months, she could then sell it CGT free when you get back together. AFAIK it would have to be 6 months to be completely legit. Best way for her to 'move in' is change address on bank accounts and credit cards. As above, speak to an accountant or a financial advisor so they can give advice based on full details

xyzpaul

The only way to understand your CGT liability is to read the PDF on the Inland Revenue site (from the link above).

All of the previous advice given in this thread is inaccurate !!

xyzpaul

You also need to read CGT1 "Capital Gains Tax" from the same site. It's a whopping 96 pages long but pretty simple to follow. In fact, this should be read before IR283.

mattstant

I bought a student house a few years back and sold it on with out apaying any CGT but i am Buggered if i can remember why not????
Ihave got good accountants i will have to ask as they handled the accounts on it.

Tiggs

its threads like this that give me faith in the long term future of the financial advice business

fast bloke

You got something to say Tiggs?

fast bloke

Davyboy - If you give me the year purchased, purchase price, rental income per year, selling price and dates of residence by Claire, I can tell you what you would owe the IR of you played by their rules. Fortunately there are various other sets of rules, most of which are non IR friendly, but completely legal

The Viking

Davyboy some interesting advice here. CGT is all in the detail. first establish the correct purchase price including all fees etc this is your base cost. If bought prior to 1988 there is an extra allowance called indexation that compensates for inflation.

Next add up any the cost of any improvements that you have done over the period of ownership (not just rental) if you have claimed these agaisnt rental income then tut tut they are disallowed now. This is new bathrooms, kitchens etc. Add this to you base cost.

Now take the expected proceeds less any costs such as estate agents and solictors. This is your net proceeds.

From the net proceeds take the base cost (with improvements). This will give you your gross gain.

Now depending on when you bought it and when you sell it there may be another releif called taper relief its not much but hey. But ignore that for time being.

Now write down number of months that you owned it. This will go as the bottom half of the fraction you are about to creat.

The top half is the number of months your partner actually lived in the property and add 36. So you should have a nice fraction. Once you multiply this by the gross gain the amount will be the exempt amount of the gain due to personal main residence exemption.

What ever is left deduct the personal exemption for partner which is circa £8000. The residue from this is chargeable at her highest rate of tax ie will fill up basic rate band first then 40% band.

I say just she as I assume not married (no moral judgement) so are you on the title if not her asset entirely regardless of the rental income split. Therefore she will get the full main residence exemption. Yet if she put you on to the title and you never lived there then that could cause problems. See an accountant this should be very cheap to sort out.

If when you do the above no tax due then great don't worry although you will have to declare on ITR. Don't try not to tell as HMIT will notice rental income not there anymore and are clever enough to work out likely cause.

If tax due then go and see a good local accountant or email me and I will advise properly.

Clare

Bought house in November 2000 for £57,000, lived in it until 6th July 2002. Rent I get is £397.00 (I've taken out the 10%), Mortgage is £335.00 going up to £350 in December. It's fully furnished.

House is now worth around £90,000. Was worth about £80,000 when I rented it.

What else do you need to know?

Before anyone says it, no, I am not making much profit, but I never did it for the profit. I was doing it to sell at a higher price next year!!!

MarkO

This is from the man who decided to start up a new business as an IFA, 3 weeks before the FSA changed the rules - effectively making IFAs irrelevant (well, to 99% of the population, anyway).

Sicey

I am just selling a house that I have been renting for the last 2 years and in the same position, accountant says no CGT as long as it was my main residence before the rent term and that it has not been rented out for more than 4 years, I have been paying normal tax on the small amount of income I make from the rent profit.
Hope that clarifys it a bit more for you all.

xyzpaul

Claire, as you've owned the house for less than three years and you've lived in it for some of that time, there is no capital gains tax to pay.

Hurrah

Clarebabes

Next question is how much income tax should I pay - I don't really want to go down this route, think I'll just bury my head in the sand and hope it goes away quietly!

MarkO

What's income tax got to do with this?

Clarebabes

Income on rental. I don't really want to know, I'll just say I didn't think I had to pay any!

MarkO

You get income tax relief on any rental which is covering mortgage payments on the property. What most people do is to max out their mortgage on the rented property, and put the extra capital into their main home. That way you're maximising your tax relief on the rental income, and at the same time lowering your outgoings on your home.

davyboy

Just sell it and buy me a 993!

Floyd

iTrader: (9)

Er, thanks for the info everyone. I work for the IR and I can't ignore what I've seen, especially MarkO. I'll be writing to you all in due course

F

Clare

Floyd

You don't know where I live BTW

The Viking

Agreed no CGT and will be that way til 2005..phew.

Income tax don't have to declare til 2003 tax return not due til Jan 2004. Even if have no other expenses profit is £558 so max tax if higher rate is only £223.20. Once take out repairs any insurance rates etc I doubt will have any income tax to pay. Even full year unlikely have much if any tax so relax.

About remortgaing to spend money on other things yeah you can but interest on extra amount not allowed against the rental income.