Dingdongler

On behalf of somebody else who I fear I may have misinformed!

If you buy a house for £x and live in it as your primary residence for a few years. Then you move out to a new primary residence and the original property is rented out. At this point the original property is worth £y.

Now when this first property is sold which which is the starting value used for cgt purposes, is it £x or £y?

Thanks

zip106

I believe it's the difference between £x and £y that tax is paid on.
Also, it has to be a primary residence for 7 years after which no CGT is paid?

This may help -
http://www.which.co.uk/money/tax/gui...ins-are-taxed/

addi monster

iTrader: (6)

spot on

legb4rsk

Unless your an MP.

RobsyUK

iTrader: (2)

I was confused after X

hodgy0_2

it is calculated at Y,

if you buy a house for 100k and live in it untill it is "worth" 200k

you get that gain tax free

if you rent it (at a nominal value of 200k) for 5 years and at the end it is still worth 200k --- then you pay no tax

if it is worth 500k after a 5 year rental period the you pay CGT on the "uplift" in value when it was not your PPR in the case it would be 300k

if you move back in and it becomes your PPR and in the next 5 years it increases in value to 1 bar you wouls still pay the GTC on the increase in value whilst it was rented

the trick is agreeing these values with the tax man

in an ideal world you want a unrealistically high valuation when you rent it and the opposite if you move back in, after a period of rental

obviously there are always ways around it -- but above is the basic principle

Dingdongler

Thanks Zip.

Hodgy, are you sure? I thought the same as you and adviced a mate who asked the same.

Then today somebody told me I had got it wrong and that the liability was based on the uplift from £x, though there were various allowances.

Thanks

hodgy0_2

yes I am sure Ding

you get the capital gain tax free (uplift) whilst it is your PPR

you don't get the gain, if any (after all the house value could fall) whilst it is rented

that simple

it gets complicated if you claim a portion of the house agianst tax, say if you use a room for buisness

then the taxman can claim it was not you PPR (you claimed business expenses against it) and you will have a tax liability on any capital gain

the basic principle is you can't have your "tax" cake and eat it

so in your example, any capital gain whilst it is your PPR does not fall foul of that principle

any capital gain, whilst you are gaining an income from the property falls foul of that principle -- so you are liable for CGT whilst rented

if you move back in, then you get the principle apply to the period it is back being your PPR

Silver Knight

It cant be based on the uplift from £x as you have not yet sold the property, it will the difference from when you move out (£x)until you sell the house.

mattstant

ERR nearly right there is NO requirment to be living there for 7 years it can be as little as 6 months.

You can even avoid it on second homes if you have proof you have lived there for a short period (ie your name on a utility bill) i know this for a fact as i am a property developer and i have done this with a student let i had a few years ago

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm#1

Dingdongler

That doesn't make any sense ( I mean Zip's statement that you quoted and then agreed with) Forget the 7 year thing as that is not relevant)

£x is the value the property was bought for and then used as primary residence for a number of years

£y is the market value of the property when he moved out and put the house up for rent (and buys another primary residence)

Some years later lets say he sells it for £z. How can CGT be based on y-x?? He never sold it for £y.

It can only be one of two options either

1) £z-£x

Or

2) £z-£y

Hodgy and I think it is 2). Do you think it is 1) and if so please can you explain why?


Thanks

zip106

Apologies for getting the 7 year rule wrong - I was thinking about cash gifts and CGT.

Anyhow, I think you and Hodgy are correct, as at £y you wouldn't know the value of the property until you come to sell it at £z.

So z-x.
Don't forget you can deduct certain expenses and improvement costs from z.

mattstant

i am 95% sure its the value from Y. but this may be irelevant if:-

As quoted below in the third paragraph (from the HMRC web site no less) the implication is that as long as the rental period was three years or less then the full relief still applies ?.

"Working out the relief
To work out the relief, you need to work out the period that you've owned your home for. This starts on the later of:

•the date you bought or acquired it
•31 March 1982
It ends on the date that you sell or dispose of it.

The final three years (36 months) always qualify for relief, even if you weren't living there, as long as it's been your only or main home at some point during the time that you've owned it"

the key phrase being "YOUR ONLY OR MAIN HOME AT SOME POINT" open to quite alot of er shall i say creative interpretation

There are lots more complicated issues involving sharing relief with your spouse which i am NOT properly qualified to give advice on (or any other issues for that matter)

My accountant is involved with a test case where the residency was less than three months ie just long enough to produce utility bills in their name.

Unfortunatley (or is that fortunatley) my main concern these days is with corporation tax ,self administered pension rules ,and the devious obfucscations perpetrated by lying F***ing bankers.

mattstant

sorry to answer this question properly it should be:-

value at Y+3years = NO cgt incurred


if sold beyond y + 3 years (z in this case) then the sum should be

Value at Z - value at Y+( 3 years) = cgt incurred at 18% (obviously excluding any allowances) QED errr i think.

phew think i,m going to go and have a long lie down now.

zip106

How can you come to a value at Y if it's several years in between X and Z?

hodgy0_2

tbh on this one I think we all agree

your tax liability for any capital gain whilst it is your PPR is none

however as I pointed out in my first post, and Zip has noticed, often the point at which you become liable is a bit fuzzy because no sale (hence value) has taken place

this is why you have to negotiate a bit with the taxman to come to a value, if you are sensible you will get it valued by a couple of estate agents before you rent it (make them value it as high as possible)

then, the valuations can be used as evidence -- when agreeing a value with the taxman - to determine at which point you are liable for CGT


so say you buy at 500k, and live in it for 5 years at which point is has "increased" in value (we think due general house price inflation and estate agent valuations) to 1 million

and then you rent it out, the increase of 500k is tax free (how do we know the value, we don't, we have to agree it with the tax man - but not untill we sell and incur a potential tax liability)


if, whilst rented for 10 years it doubles in value to 2 million and is then sold -- you "may" have a CGT liability of 18% of 1 million (subject to allowances etc)

but as Zip point out how do you know, at the point you rented it was worth 1 million, the point is you don't -- you have to negotiate it with the taxman

(which is why you wanted it valued when you rented it as high as possible, in the case above if you could prove it's value was 1.5 million before you rented it out -- your tax liability would shrink to 500k)

mattstant

No need for the value of y, it says value at (y+3 years) ie the value after three years of renting.

Dingdongler

Zip, Hodgy has answered your question. The value y is 'market value' and is valid but needs to be agreed with the taxman. I had to do this in a different context once with the taxman and he never argued with the market value I proposed, and of course the value was in my favour.

Thanks Hodgy, I was pretty sure we were right but somebody was trying to convince me otherwise