PPR/CGT in relation to letting

[midnite70]

I'm hoping someone can help me work out how to calculate CGT when PPR and letting relief is in place etc.

I currently own a house with my wife and we have owned and lived in it as our main property for 17 years.

We have currently remortgaged the property on a let to buy basis and will move to a new house, my current house we will let. Both properties are in joint names and we are both higher rate tax payers.

I will write to the tax office and decalre that I am now running a letting business and that my new home is now my PPR.

If for example I purchased the house 17 years ago for £50,0000, When i remortgaged it was valued at £100,000 and lets says I sell the house in 20 years time I sell it for £200,000 how does PPR along with letting relief and personnel CGT exemption come into play.

I thought I had understood it but something I have read recently has caused me to question my understanding.

Many thanks for any help.

Tom

[mullet]

If you simply move from one property to another there is no need to nominate a particular property as your main residence. Indeed, there is no statutory basis to do so. Just write to HMRC to advise a change of address in the usual way.

Private residence relief is calculated on a "straight line" basis. So if you sold that first property after owning it for 30 years, PRR would be 17 years of residence plus the final 3 years = 20 out of 30 years relief. You then get lettings relief, being the lower of the amount of PRR, the gain arising by reason of letting or the limit of £40,000. This is per owner, and the (strictly) correct way to prepare the CG computations is for you each to show 50% of the disposal consideration, original cost, enhancement etc, then PRR and then LR.

The value of the property at the time of first letting is not relevant as a change of use is not a chargeable occasion for CG purposes. That's my opinion, but Incredulum believes that a "just and reasonable" apportionment may well be able to take account of such valuation, particularly in times when property prices do not rise at an even rate within the period of ownership.

[midnite70]

Hi msp,

Thanks for the response. So I think it would work like this.

Purchase at £50,000 and sold at £200,000 after 37 years ownership and 17 years as PPR

Amount potentially liable for CGT is £150,000

but lets say we spent £5,000 on buying and selling fees the possible liability would be £145,000

We then take £145,000 and divide this by 37 giving a gain of £3981 per year.

We are allowed PPR of 17 years (as it was our PPR) + 3 = 20 * 3918 = 78360

CGT liability is then 145000 - 78360 = 66640

We can then claim letting relief of £40,000 each as this is lower than £78360 PPR or would the relief actually be £39180 each as we jointly owned the property??? (not sure about this bit)

Even giving it is the latter the CGT liability is therefore zero as the letting relief of 78360 ids greater than the 66640.

Given this we would only be liable for CGT after the property had gained a further 78k, although does the personnel CGT liability per person also kick in.

Thanks

Tom

[midnite70]

Given this we would only be liable for CGT after the property had gained a further 78k, although does the personnel CGT liability per person also kick in.

This should have been an extra £11,720 to be gained before we attracted CGt, although does the personnel CGT liability per person also kick in

[mullet]

Looks about right to me. Remember to calculate the "gain by reason of letting" accurately, i.e. time apportioned to the let period and not including the final 3 years (as no gain at all arises in that period).

[midnite70]

Cheers

Thats re-assured me that I'm on the right lines

[Peter D]

Yes you are on the right lines but a value of £200,000 in 2030 is wat too far low so there will be a CGT liability way before that. Remember the LR max's out at £40,000 per owner. Regards Peter