I have client who is thinking to let her property for 5 years and than after 5 years, she will move back in property and live for another 10-12 years and sell this property thereafter. She is doing this project just to earn extra cash as current property were she is residing will yield good income if she rent it out for 5 years and she rents another property cheaper.
I understand that there are CGT to be paid if you don't live in property as your principal private residency from time you acquired until time you dispose it. However there is calculation carried on monthly bases, based on residential and non-residential time you live in property (e:g 72 months residential divided by 60 month of non-residential), I can't remember who this was calculated and appreciate if someone can help here.
Assuming she lived in property for 4 years and than let it for 5 years and than move back and reside as PPR for another 10 years and sell it after. What will happen to time you rent it out ? Are there any CGT dues ?
- 14 years - principal private residency
- 5 years - let property
This would be 168/60
Are there any CGT to be paid ?
Your help is highly appreciated.
Replies (8)
Please login or register to join the discussion.
Noone can tell you whether any CGT would br payable as you do not tell us what your client purchased the property for, or what we should assume she will sell it for in 15-17 years time.
Suffice it to say that you seem to have overlooked letting relief, which will shelter some or all of the gain arising during the five years she plans to live elsewhere.
Have you read HMRC's Help Sheet HS283 on the subject? http://www.hmrc.gov.uk/helpsheets/hs283.pdf
In principle
if the rules for CGT are the same when she sells - and that is actually a big if - she is liable on 5/19 of the gain then look at further reliefs such as letting relief. Since letting relief is a maximum of £40,000 off the gain and you are looking at tax possibly on 5/19 x 1.8m -0.7m - thus £290k or so - she still could face a large CGT bill.
There are some other reliefs to do with periods away from the property and the last 18 months is always exempt on current rules.
Suggest you do some reading round to familiarise yourself further.
As to the maths usually computations are done by months in my experience.
If you are giving advice in a professional capacity you do need to caveat about possible future changes in the law. PPR is certainly up for review at present.
The above figure of £290,000
The above figure of £290,000 ignores lettings relief and the annual exemption. So you can knock £50k off for those.
If she moves out and moves back in
And does not own a property to which PPR would apply in the intervening period, she can be treated as being in occupation for three of those intervening years.
Her chargeable gain will then only be 2/19ths, so £116,000, less lettings relief £40,000, leaves £76,000, less annual exemption £11,000 = £65,000 @ 28% = £18K tax.