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Capital Gain on 2nd home

by nikkivb 13 August 2012 |

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Exactly two years ago we decided to rent our house out which we live in for 8 years as we could not sell at the time. We now own another property we have lived in for the last two years which we plan to stay in. My mortgage is due now but I heard you have to sell with 3 years to avoid capital gains tax. My lodger is signed up till May 2013.

If we kept the property and took out another 2 year fixed as I don't want to go on the standard variable rate, would we have to pay capital gains we have about £60,000 equity. Any help would be great

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880

MikeGG1 posted
The amount of equity is irrelevant for capital gains tax. It is the movement in the house price which counts.

Your problem is that there was probably a gain before the crash which you have not crystalised. As a consequence, that earlier gain would be spread across the whole period of ownership. A total of 11 years would not count and then you would have the annual CGT allowance before tax would be charged.

You say we. Is the house in joint names? If so, you would both have an annual allowance and each would be charged on half the residual gain.

The further you go, the more of that earlier gain gets charged and you still only have the annual allowance for one year. You would be better selling before the end of the 3 years unless the current gain is less than £21,000.

Mike
Posted on 14 August 2012 | Love 0 loves Report
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nikkivb posted
Thanks Mike that really helps. The house is just in my name. I also heard if the house is on a plot of less the 5000 sqm you also don't get charged CGT is that true?

Our house was brought for 125,000 and is now 235,000 so I think we really need to sell as you mentioned.
Posted on 14 August 2012 | Love 0 loves Report
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MikeGG1 posted
I am not sure but think that the 5,000 sq.m. rule relates to the garden in that you could be charged CGT on the excess if it could be sold off for development even if you have lived there the whole time.

Are you married, or in a legal partnership? If so, you could double the annual allowance by transferring half, or even a different proportion if you each have different highest tax rates. A transfer would be deemed to be effective at the original purchase date.

If you are not married, a transfer would be considered to be a disposal at the current date and value and would lock in the current capital gain. Any subsequent gain would be fully chargeable apart from the annual allowance when you sell. There would not be a second 3 year period unless you lived in it as your Principal Private Residence after the date of transfer.

I would sell.

Mike
Posted on 14 August 2012 | Love 0 loves Report
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nikkivb posted
Been married since 2003 so I could get my husbands name on the deeds I presume not the mortgage. Would this help? What is the Capital Gains threshold then as we would have made £110,00 since we brought the property?

Would this mean we would avoid Capital Gains if we kept the property.

Thanks so much Gary for your help
Posted on 14 August 2012 | Love 0 loves Report
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MikeGG1 posted
If you are married, any transfer would be deemed to have been at the original date so you would still have CGT liability.

If, say, you kept it for another 4 years without any change in value, the chargeable gain would be £110,000 * 3/14 = £23,571 less £10,600 = £12,971. If the transfer were to be made then each would have £11,786 - £10,600 = £1,186.

Keeping it for another 3 years would mean chargeable gains of £28,224 or £8,812 without any increase.in value.

The chargeable gain would be taxed at 18% if on standard rate or 28% if on higher rate. If the gain when added to your income took you from standard rate to higher rate then part would be charged at 18% and the balance at 28%.

Because of the annual allowance, the breakeven point would be after 4 or 5.5 years rather than 3, unless you have other gains in those years. So you don't have to do it before the 3 years is up.

My figures are approximate as I don't have exact dates.

Mike

Posted on 15 August 2012 | Love 0 loves Report

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