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Where Taxpayers and Advisers Meet

Impact of abolishing lettings relief

Stranger99
Posts:9
Joined:Sun Nov 04, 2018 5:22 pm
Impact of abolishing lettings relief

Postby Stranger99 » Sun Nov 04, 2018 5:36 pm

I have been a residential owner occupier of a property in Edinburgh for 20 years, bought for £57K, now worth perhaps £157K. I was considering letting out my property but am unsure as to how this abolishment will affect me.
For example, if I rented it out for the next 20 years, and assuming for simplicity the value was still £157K would CGT be paid on 20/40 * £100K *18% = £9,000 which would be covered by the annual £11,700 CGT exemption.
My real worry is that CGT would be calculated on 40/40 ie. From purchase date. Very much appreciate it anyone can shed light on this
Thanks

AdamS93
Posts:268
Joined:Tue Sep 26, 2017 6:28 pm

Re: Impact of abolishing lettings relief

Postby AdamS93 » Mon Nov 05, 2018 8:18 am

You haven't grasped the idea of how CGT works.

Your work out the gain - in your case £100k. You then deduct any letting relief/PPR if available (you don't get letting relief if you have never lived in the property anyway).

You then deduct your annual allowance BEFORE tax - leaving a gain of £88,300 (£100k - £11,700)

You are then taxed on the remaining gain of £88,300 at 18% and 28%.

This is a fundamental part of understanding CGT - the best advice one can give is for you to engage an accountant/tax adviser.

Stranger99
Posts:9
Joined:Sun Nov 04, 2018 5:22 pm

Re: Impact of abolishing lettings relief

Postby Stranger99 » Mon Nov 05, 2018 11:57 am

Hi,

What I'm trying to ask, is what happens re CGT exposure if I let it out going forward, say for the next 20 years.

I have lived in the property 20 years and its my main/only residence. So at the moment if I sell today I believe there is no CGT due to PPR rules.

I'm assuming my PPR would be pro rata so in that instance I would be entitled to PPR relief of 50% on the gain before any calculation?

Thanks

Stranger99
Posts:9
Joined:Sun Nov 04, 2018 5:22 pm

Re: Impact of abolishing lettings relief

Postby Stranger99 » Mon Nov 05, 2018 12:08 pm

So if I'm interpreting correctly, (and assuming my house when sold in 20 years time fetched £157K)

Calc would be £88,300 * 20/40 * 18% (am basic rate taxpayer) = £7,947 CGT due

Would that be correct?

Stranger99
Posts:9
Joined:Sun Nov 04, 2018 5:22 pm

Re: Impact of abolishing lettings relief

Postby Stranger99 » Mon Nov 05, 2018 12:49 pm

Sorry for the ramble, but I think this would be the correct calculation method?

Gain = assumed selling price in 20 years time is £157K - £57K purchase price = £100K
Less PPR relief = £100K*20/40 = £50K
Less annual allowance £11,700
CCT = 37,300*18% = £6,714

I'm aware there are 3 parameters than could change - the years I rent the flat out, the CGT tax rate, the amount I sell the flat for eventually

I'm a non-tax payer at present, is there any circumstances in which I would have to pay the 28% rate?

Many thanks

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Impact of abolishing lettings relief

Postby robbob » Mon Nov 05, 2018 1:32 pm

CCT = 37,300*18% = £6,714
Looks like you got there in the end well done
is there any circumstances in which I would have to pay the 28% rate?
Yes if the gain (37,300) added to your other income exceeds the higher rate threshold (46,350 this tax year if you don't live in scotland)

Stranger99
Posts:9
Joined:Sun Nov 04, 2018 5:22 pm

Re: Impact of abolishing lettings relief

Postby Stranger99 » Tue Nov 06, 2018 1:42 pm

''Yes if the gain (37,300) added to your other income exceeds the higher rate threshold (46,350 this tax year if you don't live in scotland)''

I don't understand why a capital gain on a house sale would be added to my income as I thought capital and income were treated under separate rules?

Could you please explain

Thanks

Stranger99
Posts:9
Joined:Sun Nov 04, 2018 5:22 pm

Re: Impact of abolishing lettings relief

Postby Stranger99 » Tue Nov 06, 2018 1:58 pm

To better explain - I don't understand how a capital gain of £37,300 can be classed as income as well and added to any other taxable income I receive (such as rent) in the year I sell the property

I was under the impression capital gains and income are always treated separately?

bd6759
Posts:4254
Joined:Sat Feb 01, 2014 3:26 pm

Re: Impact of abolishing lettings relief

Postby bd6759 » Wed Nov 07, 2018 6:10 pm

It is not income and it is treated separately. But the rate of CGT (either 18% or 28% for property) is aligned with the income rate bands.

Stranger99
Posts:9
Joined:Sun Nov 04, 2018 5:22 pm

Re: Impact of abolishing lettings relief

Postby Stranger99 » Wed Nov 07, 2018 7:56 pm

Sorry, but can you explain for a simple layman in plain English for me how this alignment works. It doesn't make sense to me.

Are you confirming that it will be 28%?

In fact, will it not mean hardly anybody will ever pay at an 18% rate?

Thanks


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