I bought a house 15 years ago and paid off the Mortgage. I then remortgaged the house to carry out a barn conversion, and once it was complete moved into the barn and rented out the house. I have 3 years to sell the house to avoid capital gains tax, but the market is flat. If I keep it beyond three years will I have to pay capital gains on a proportion of the gain from when I bought the house 15 years ago, or on the full amount of the value since starting to rent it out (i.e. gain between purchase and renting out not being counted as it was my only home at that time)

donut:I bought a house 15 years ago and paid off the Mortgage. I then remortgaged the house to carry out a barn conversion, and once it was complete moved into the barn and rented out the house. I have 3 years to sell the house to avoid capital gains tax, but the market is flat. If I keep it beyond three years will I have to pay capital gains on a proportion of the gain from when I bought the house 15 years ago, or on the full amount of the value since starting to rent it out (i.e. gain between purchase and renting out not being counted as it was my only home at that time)

I have just been through this last year and there are some good bits of info on the HMRC site hmrc.gov.uk. If you hold onto your property for more than 3 years after the first rental start date then the proportion of the Capital Gain that is taxable will be assessed using the following.

EXAMPLE Time owned property 20 Years LESS Time as resident (15 years) LESS Principle Private Residence Relief (3 Years) equals 2 Years. If property value increases from say £100,000 to £250,000 there is a gain of £150,000 divided by 20 multiplied by 2 EQUALS £15,000. Before you reach the actual gain figure you must also deduct buying and selling costs (legal fees and estate agents commissions and the cost of any improvements to main house since you moved out)

You also have a CGT exemption which can change every year (it was £9,600 last tax year) and this can be doubled if there are joint owners on the title deeds.

There is also a good book which I bought from taxcafe.co.uk to reduce capital gains tax and property tax, definitely worth getting.

Also if you register and post all the figures on a site called taxcafe.co.uk (click on forums, capital gains tax)there is a gentleman by the name of Peter D who will give you an exact computaion, but you need to state exactly how many years, months and days for the calculation to be made exactly.

Also further to these exemptions mentioned above, you should be also able to claim "Lettings Relief" which gives you the same amount of PPR up to a maximum of £40,000 so the chances are you could probably keep the house for 5 or more years on top of the 3 years PPR period.

Good news eh!

Thankyou very much for info and further reading etc, It was as I thought - but not what I hoped!! I hoped the period of gain wouldn't start until we started renting out, but all the other tips and info do soften the blow.

Another thing to consider, specially if you can't rent the other house out, but you don't want to sell it either; is that you can still have it as your PPR (Principle Private Residence) - even if you don't actually live in it.

Interesting idea and thanks for suggestion. Bit confused as to which house you are referring to - do you mean converted barn where we live or town house we rent out. This sounds v.grand doesn't it? Its not quite as it seems. We need to live in the Barn so my husband can farm the surrounding land - and we will not sell or rent it for the forseeable future, if ever. We rent the house 'cos we can't sell it for a reasonable price, to pay the remortgage. Can we use the town house as our ppr whilst renting it out (to a family friend) whilst living in the barn which would then not be our PPR. Is it bit like MP's? can we swap around according to our convenience!

You can nominate the town house as your PPR. Of course if a family friend is staying there and looking after the place for you, that is your business, and has no tax implications as long as no money is changing hands (if you see what I mean).

Keep it simple.

thankyou very much, unfortunately DSS involved so think will be open, but will use it as PPR - good move!

The main house has already been your PPR for 15 years or so and with the PPR and Lettings relief allowed, it is still going to be free of CGT for a while (but this is a guess as you have not given any figures of cost when bought, value now etc)

What about when you come to sell your barn conversion in the future - have you thought about the size of the capital gain on that one? You can only claim PPR on one property at a time so for now it may be worth you declaring the barn conversion as your PPR.

A word from experience here, it would be well worth sitting down with a Chartered Tax Adviser who specialises in CGT on property. It may cost you in the region of £300 to £400 for a couple of hours of their time for them to run through some figures on a couple of different scenarios and then take it from there.

I already mentioned the book from taxcafe and that can also help you understand the pitfalls you may encounter with CGT. For the amount of CGT which you can legally avoid by good tax planning both of the ideas are well worth it because when you come to sell you could be stuck with a big tax bill for an earlier mistake unless you are seriously thinking about going Non-Resident in which case CGT is nothing to be concerned about if you sell in the tax year after you leave the country and do stay out for the 5 full tax years (if that concession is still available by then)

wow, its complicated - never was a finance wizz kid. Bought house at £30k, worth £100k when started renting out, now possibly £80k. Not selling barn conversion as it is on husbands working farm, not until he retires (now 40 yrs old).

Won't be leaving country in near future. Think will try and sell B4 3 years up and invest in lambing shed and sheep! Refuse to pay CGT on years I lived in the house (i.e. £70k gain), accept paying it on any gain between £100k and sale price in future.

Thanks for your help. Will buy book and contact accountant

That's better than guessing.....

If say you kept the house for another 10 years so you have it 25 years in total....Lets say the house is worth £180K when you come to sell in in 2019.

£180K less £30K = £150K Profit since first purchase. PPR for 15 years plus the additional 3 years = 18 years

£150,000 divided by 25 times 18 = £129,600 PPR plus £40,000 Lettings Relief = £169,600 still leaves you room to spare so at todays CGT Rules you could really be looking at holding onto the house till its worth in excess of £200,000 because you can also use your CGT allowance of £10,100 (current year) each, if both on title deeds plus any buying and selling legal expenses and Estate Agents commissions.

Just remember to keep an eye on CGT rules around pre-budget time just in case they change the rules for the following budget. I would have thought a Tory Government would have done away with CGT but El Gordo has left this country with a humoungus debt so we cannot bank on that.

So no need to contact a tax adviser for a few years now!

DO NOT FORGET. Write a letter to HMRC stating that you now wish the barn conversion to be your PPR if that is what you choose to do. You can backdate this nomination for a period of up to 2 years.

phew thats reassuring, so I will wait a year to see how the property market goes, then decide which is PPR, but knowing all this info helps me make an informed choice. Thankyou very much

Are you sure that this lettings relief is still applicable from 06 Apr 08?. I seem to remember having read that this is no longer applicable in the new CGI property rules. I can't find reference to it on the HMRC website.

Hello Jabez

I think you are getting mixed up with the relief where if you held assets for between 3 and 10 years you could claim up tp 40% off the amount of the capital gain made when selling.

I used it last year and I think it was IR283 information sheet that covered both PPR and LR, If you have a look on the taxationweb.co.uk forum under the CGT section you will see examples of it in calculations being made even this month

Just had a quick shifty at HMRC site here is helpsheet HS283 (Replaces IR283)

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

and here is the helpsheet on Taper Relief which is now defunct after my mate Alistair reduced CGT rates from 40% to 18% on 6 April 2008. (Mine was actually 0% as I have become Non-resident)

http://www.hmrc.gov.uk/cgt/property/taper-indexation.htm

Cheers

ATM

Thanks for the taxationweb link. It looks good. I'm still not sure about the LR situation, as the example in HS283 only shows an example for a 60/40% split in one property. I'm in the situation where I own a flat which I bought in 1998, lived in until 2002, rented out until 2007, lived in again from 2007-2008, and rented from 2008-now. If I was to sell the flat now for a CG of say £75,000, do you know how to calculate my CG liability? I'll post this on the taxationweb site as well.

Jabez