Capital gains tax

[JudyC]

Is this only payable on any profit you make, so the difference between the purchase price and price it sells for. I've looked at HMRC and I think this is right, can anyone verify.
Just to clarify it's not an inherited property, but a flat my son bought six years ago, which is now caught up in the cladding issues. He is buying a house but can't seĺl his flat, so plans to let it until it's sorted out, which may be a couple of years.

[TiggerRocks]

Yes - there is calculators to work this out for you if that helps for a second home.

You also get about a £12k allowance before you pay any tax.

[lov2dibb]

I would have thought as it was his main residence for six years that that time period would be exempt and the CGT payable from when it becomes a second property.
I got a free initial consultation with a local tax accountant (on a different matter) so it's probably worth asking a professional.

[tspill]

Originally Posted by lov2dibb

I would have thought as it was his main residence for six years that that time period would be exempt and the CGT payable from when it becomes a second property.
I got a free initial consultation with a local tax accountant (on a different matter) so it's probably worth asking a professional.

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This!
If it is his normal home, then it isn't subject to CGT.

[munmun]

CGT is payable on the difference, minus your annual allowance. He may gets some residential relief.

He needs to remember that he will have to pay extra stamp duty on the purchase of his second property. If he sells the first property within 2 years he can reclaim the extra stamp duty fro HMRC, it's a simple efficient process.

He should get the property valued so he has a baseline, the problem will be that its value currently will be difficult to determine because of the cladding so when he does sell the uplift will be greater.

[munmun]

Originally Posted by tspill

This!
If it is his normal home, then it isn't subject to CGT.

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It is if it becomes a BTL

[tspill]

Originally Posted by munmun

It is if it becomes a BTL

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I didn't see a reference to BtL? I did say if it was his "normal home".

If it becomes BtL, or they purchase another home and this becomes their main residence, then it will be subject to CGT. I missed the point where they will be buying another home.

[Claudette]

Originally Posted by lov2dibb

I would have thought as it was his main residence for six years that that time period would be exempt and the CGT payable from when it becomes a second property.
I got a free initial consultation with a local tax accountant (on a different matter) so it's probably worth asking a professional.

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It does not work like that, it is calculated proportionally not on dates. If it were to work on dates, a valuation would be required at the point the house goes from being rented to lived in (or vice versa) and obviously this brings in subjectivity which is not how the tax system generally operates.

Also whether there is a second property or not is irrelevant, CGT would apply for the time period it is rented out - as at that point it cannot be deemed the main residence, as somebody else is living in it.

The gain is calculated based on two factual numbers, what it was bought for and what it was sold for. There can be other deductions from the gain such as cost of any capital improvements and selling related fees.

The next step is to calculate what % would be chargeable which would be the number of months it was rented / total months of ownership. The last 9 months is always deemed as being owned not rented. This % of the total gain is then subject to CGT after allowances etc.

[disney332]

Originally Posted by tspill

I didn't see a reference to BtL? I did say if it was his "normal home".

If it becomes BtL, or they purchase another home and this becomes their main residence, then it will be subject to CGT. I missed the point where they will be buying another home.

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There are exemption periods after they move out... its complicated.

Disney332

[tspill]

Originally Posted by disney332

There are exemption periods after they move out... its complicated.

Disney332

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Indeed.
It is like everything, because there are so many different elements, it all becomes very complicated very quickly.

When we had our house in Florida, we went to a tax specialist due to the increase in value and CGT. When I left the meeting (where we had identified there was no real way to avoid huge CGT liability) - they said "Just remember, it is a great problem to have".