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CGT on rented property

CGT on rented property

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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)

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By johngroganjga
16th Nov 2014 22:08

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.

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By massky
17th Nov 2014 00:36

When can assume
She purchased property for herself and currently living as her PPR but she thinking rentening out for 5 to 7 years and than return to live in property as her PPR and sell it after 10-12 years.

As being told, she purchased for £700,000 and lets assum she sells it for £1.8 million in 12 years time. What will happen to the time you rent it out ? She will rent another cheaper place for 7 years .

Any suggestions ?

Thanks

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By johngroganjga
17th Nov 2014 08:16

Like I said, the answer to your question is lettings relief.

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By King_Maker
17th Nov 2014 08:11

Have you read HMRC's Help Sheet HS283 on the subject? http://www.hmrc.gov.uk/helpsheets/hs283.pdf 

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By Anthony123
17th Nov 2014 08:42

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.

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By johngroganjga
17th Nov 2014 08:47

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.  

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By Portia Nina Levin
17th Nov 2014 10:20

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.

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By massky
17th Nov 2014 22:00

no she doesn't own any other property

 

she only owns this property she is thinking to rent it out, but I have suggest her that it might not be worth doing this business plan as you tried to earn some extra cash by doing so, but you will lose it when you sell the property and pay CGT, (also considering herself on rented property which it doesn't feel as your own home). I have to get back to her and tell all this and she can weight worthless doing so.

 

Thanks to all who has participated to this thread. 

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