Disposal of a Rental Property - avoidance / reduction of CGT

[Andreacox]

A house I formerly lived in has been rented out since April 2004, and the current tennancy agreement runs to June 2007.

I am about to purchase a new property to live in, and re-mortgage the rental property. I need to understand the CGT disposal implications in order to decide whehther to sell the property or continue to rent it (as this will influence the type of mortgage I take out now).

If I sell the property in June 2007 can I do so without having to pay CGT?

Or, if I move back into the property how long will I have to stay there before I can sell it (and will I have to convert the mortgage from a buy2let during the period).

Another thought may be to reduce the CGT by giving part ownership of the rental property to my son (currently age 12).

[al_eebee]

If the property was your main residence up to April 2004 it will be CGT exempt up to that date PLUS the final three years of ownership.



So if you were to sell in July 2007 there would be a period of 3 months potentially chargeable to CGT out of the total period of ownership.



However there is a further relief for lettings of the lesser of the CGT exemption due for main residences and £40,000, which together with your annual exemption should mean that a sale in July 2007 would be fully exempt.



If you were to move back in and take the property as your main residence for a period at some point in the future then there is a further 3 year addition to periods treated as exempt by virtue of TCGA s223(3)(a).



If you propose selling soon after the tenancy ends it would seem likely that any gain on the property should be exempt.



On a separate matter you should be able to borrow up to the value of the rental property in April 2004 (when it was introduced to the letting "business") and obtain relief for interest paid against rental. It looks as if you were already aware of this but I mention it in passing anyway.