Property Capital Gains

Tax Question

I am considering selling a property that was previously my main residence and is now let, what capital gains tax would be due and is there an optimum time to sell.

Original base cost was £50,000 in October 2002, value now £320,000 and it was used by me and my family as a home from purchase until October 2013.

Tax Answer

Pre budget changes – Currently the property attracts principal private residence relief (PPR) and lettings relief. The PPR is the period of occupation plus the final 18 months regardless of usage, thus assuming a sale in October 2019 there is a gain of £270,000 (320.000 – 50,000) accrued over the entire period of ownership of 17 years/204 months. The PPR is from October 2202 to October 2013 plus 18 months, ie 150 giving relief of 150/204 x 270,000 = 198529 leaving a net gain of £71471.

Lettings relief is then available which is the lower of an amount equal to the PPR relief, the net gain remaining or £40,000 so in this case £40,000 thus the chargeable amount is  £71471 – £40,000 = £31471 before any annual exemption is applied.

Post budget changes – Assuming the disposal takes place after 5th April 2020 say in May 2020 then the position is completely different. The gross gain remains at £270,000 and the PPR relief moves to 141/211 a £270,000 = 180,426 leaving a net gain of £89574. As the family did not share the property with the tenants lettings relief is no longer available so the chargeable amount before annual exemption remains at £89574.

The difference in the capital gain arising is significant at £58103 and as this is charged at 18/28%the saving for a sale before 6/4/2020 is a maximum of £16268.84.

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