Question
My wife and I bought a property in 1993 in the UK. In 2002 we moved to a rented property in the UK and rented out our only owned property. This property was sold in 2009. Do we still owe CGT even though this was our sole property?
Doesn't seem right to me.Answer
In order to avoid owing capital gains tax on any profit when selling a property you’ll need to qualify for ‘private residence relief’.
HMRC is very strict about this and states that in order to qualify the property must have been your only home or main residence AND you must have used it as your home and nothing else.
If you move out then the final 3 years will be treated as if you lived there for the purpose of private residence relief provided the property was your main home at some point during the time you owned it – but this obviously doesn’t help you given your 7 year absence.
Had you moved abroad to work you’d been ok, as this is allowed, but moving elsewhere in the UK for work is only allowed if you’ve been absent for less than 4 years – otherwise private residence relief doesn’t apply.
However, while it seems you don’t qualify for private residence relief, you should be able to clam ‘letting relief’. While limited to a fairly stingy £40,000, it should provide a little respite.
So you should be able to deduct £40,000 plus two annual capital gains tax exemptions (of £10,100 each if they're not used elsewhere) assuming the property was held jointly with your wife, a £60,200 exemption in total. Any remaining profit will be taxed at 18%, the prevailing capital gains tax rate at the time you sold the property.
I agree this seems a bit harsh in your situation, but sadly it’s the rules...
You can read more details about private residence and letting relief on the HMRC website.
My wife and I bought a property in 1993 in the UK. In 2002 we moved to a rented property in the UK and rented out our only owned property. This property was sold in 2009. Do we still owe CGT even though this was our sole property?
Doesn't seem right to me.Answer
In order to avoid owing capital gains tax on any profit when selling a property you’ll need to qualify for ‘private residence relief’.
HMRC is very strict about this and states that in order to qualify the property must have been your only home or main residence AND you must have used it as your home and nothing else.
If you move out then the final 3 years will be treated as if you lived there for the purpose of private residence relief provided the property was your main home at some point during the time you owned it – but this obviously doesn’t help you given your 7 year absence.
Had you moved abroad to work you’d been ok, as this is allowed, but moving elsewhere in the UK for work is only allowed if you’ve been absent for less than 4 years – otherwise private residence relief doesn’t apply.
However, while it seems you don’t qualify for private residence relief, you should be able to clam ‘letting relief’. While limited to a fairly stingy £40,000, it should provide a little respite.
So you should be able to deduct £40,000 plus two annual capital gains tax exemptions (of £10,100 each if they're not used elsewhere) assuming the property was held jointly with your wife, a £60,200 exemption in total. Any remaining profit will be taxed at 18%, the prevailing capital gains tax rate at the time you sold the property.
I agree this seems a bit harsh in your situation, but sadly it’s the rules...
You can read more details about private residence and letting relief on the HMRC website.
Read this Q and A at http://www.candidmoney.com/questions/question244.aspx
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