Selling a house - tax implications?
Discussion
Need a bit of advice here, please.
Twelve months ago my girlfriend lost her job (Sep '09). Two months later in an effort to reduce outgoings she decided to rent out her house and move back with her parents (Dec '09) - a difficult but sensible decision.
She then got a new job in March '10 but has continued to live with her parents as the extra income has helped to build her savings back up. The house was rented out between January and September 2010 but is now empty and off the rental market.
We have now decided to buy a place together and as such she will be selling her house in order to provide her share of the deposit. She has owned it since 2004 and lived there until she lost her job last year - so it has been her main and only residence for about 5 years but not for the last 12 months or so. The value of the property is about 50% higher than what she paid for it, so she will hopefully have made quite a substantial gain.
My question is whether she will have to pay any tax after selling the house? Obviously she will be declaring the rental income (or at least she should do) but does the fact that it hasn't been her main residence for over a year mean that she will have to pay capital gains tax? The gain is greater than the £10k allowance so basically we don't want to have to pay 18/28% tax on it.
Twelve months ago my girlfriend lost her job (Sep '09). Two months later in an effort to reduce outgoings she decided to rent out her house and move back with her parents (Dec '09) - a difficult but sensible decision.
She then got a new job in March '10 but has continued to live with her parents as the extra income has helped to build her savings back up. The house was rented out between January and September 2010 but is now empty and off the rental market.
We have now decided to buy a place together and as such she will be selling her house in order to provide her share of the deposit. She has owned it since 2004 and lived there until she lost her job last year - so it has been her main and only residence for about 5 years but not for the last 12 months or so. The value of the property is about 50% higher than what she paid for it, so she will hopefully have made quite a substantial gain.
My question is whether she will have to pay any tax after selling the house? Obviously she will be declaring the rental income (or at least she should do) but does the fact that it hasn't been her main residence for over a year mean that she will have to pay capital gains tax? The gain is greater than the £10k allowance so basically we don't want to have to pay 18/28% tax on it.
To ellaborate on birdcage's short - but correct - answer.
If a property has been at any time an individual's main residence but subsequently was rented out, the owner is given an additional three year's grace period in which they can treat the house as being their Main Residence, even though it wasn't for those three years.
Example.
An individual owns a property for 10 years.
They lived there for 8 years
They rented it out for 2 years
They sell it and make a gain of £30,000
Even though they have not lived in it for two years and it obviously wasn't their main residence during that period, the CGT rules ALLOW that persion to treat those two years as being part of the main residence period. The gain is therefore completely exempt from CGT.
This is a very good tax break and one which may have a limited life given the current duire state of the country's finances.
If a property has been at any time an individual's main residence but subsequently was rented out, the owner is given an additional three year's grace period in which they can treat the house as being their Main Residence, even though it wasn't for those three years.
Example.
An individual owns a property for 10 years.
They lived there for 8 years
They rented it out for 2 years
They sell it and make a gain of £30,000
Even though they have not lived in it for two years and it obviously wasn't their main residence during that period, the CGT rules ALLOW that persion to treat those two years as being part of the main residence period. The gain is therefore completely exempt from CGT.
This is a very good tax break and one which may have a limited life given the current duire state of the country's finances.
Eric Mc said:
To ellaborate on birdcage's short - but correct - answer.
If a property has been at any time an individual's main residence but subsequently was rented out, the owner is given an additional three year's grace period in which they can treat the house as being their Main Residence, even though it wasn't for those three years.
Example.
An individual owns a property for 10 years.
They lived there for 8 years
They rented it out for 2 years
They sell it and make a gain of £30,000
Even though they have not lived in it for two years and it obviously wasn't their main residence during that period, the CGT rules ALLOW that persion to treat those two years as being part of the main residence period. The gain is therefore completely exempt from CGT.
This is a very good tax break and one which may have a limited life given the current duire state of the country's finances.
EricIf a property has been at any time an individual's main residence but subsequently was rented out, the owner is given an additional three year's grace period in which they can treat the house as being their Main Residence, even though it wasn't for those three years.
Example.
An individual owns a property for 10 years.
They lived there for 8 years
They rented it out for 2 years
They sell it and make a gain of £30,000
Even though they have not lived in it for two years and it obviously wasn't their main residence during that period, the CGT rules ALLOW that persion to treat those two years as being part of the main residence period. The gain is therefore completely exempt from CGT.
This is a very good tax break and one which may have a limited life given the current duire state of the country's finances.
Thankyou for this answer, I have a couple of variations on this which I would also like some clarifiaction on.
1) If for those 3 years the person was living abroad and this was their main and only residence in the UK, could they continue to rent the house out for another 2 years without being liable for the tax?
2)If after 5 years of being away from the UK, the person moved back into the property for a period of 2 years, would they become exempt from this as it is their main and only residence?
Many Thanks
The jiffle king said:
Eric Mc said:
To ellaborate on birdcage's short - but correct - answer.
If a property has been at any time an individual's main residence but subsequently was rented out, the owner is given an additional three year's grace period in which they can treat the house as being their Main Residence, even though it wasn't for those three years.
Example.
An individual owns a property for 10 years.
They lived there for 8 years
They rented it out for 2 years
They sell it and make a gain of £30,000
Even though they have not lived in it for two years and it obviously wasn't their main residence during that period, the CGT rules ALLOW that persion to treat those two years as being part of the main residence period. The gain is therefore completely exempt from CGT.
This is a very good tax break and one which may have a limited life given the current duire state of the country's finances.
EricIf a property has been at any time an individual's main residence but subsequently was rented out, the owner is given an additional three year's grace period in which they can treat the house as being their Main Residence, even though it wasn't for those three years.
Example.
An individual owns a property for 10 years.
They lived there for 8 years
They rented it out for 2 years
They sell it and make a gain of £30,000
Even though they have not lived in it for two years and it obviously wasn't their main residence during that period, the CGT rules ALLOW that persion to treat those two years as being part of the main residence period. The gain is therefore completely exempt from CGT.
This is a very good tax break and one which may have a limited life given the current duire state of the country's finances.
Thankyou for this answer, I have a couple of variations on this which I would also like some clarifiaction on.
1) If for those 3 years the person was living abroad and this was their main and only residence in the UK, could they continue to rent the house out for another 2 years without being liable for the tax?
2)If after 5 years of being away from the UK, the person moved back into the property for a period of 2 years, would they become exempt from this as it is their main and only residence?
Many Thanks
It doesn't matter if the real periods of occupancy were not continuous.
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