Selling now after renting it out and living in it sometimes: what is the CGT position?
I have owned a flat in Birmingham for 30 years. I have rented it out for approximately 15 years and it has been used by our family as a home. I have separated from my partner of 28 years and have lived in it now for nearly two years; before this, I had a tenant that owed rent and damaged the property. She was there for seven months, did not pay all rent due and left damages of £2,300 more than any rent paid. Will I have to pay capital gains tax if I sell it? I purchased it for £45,000 and can now sell for £200,000.
Arthur Weller replies:
Answer: On paper you are making a gain of £155,000 (i.e. £200,000 - £45,000), which equates to just over £5,000 per year. Two years of the 30 years are exempt because you lived in it (it seems, as your main residence). It appears that the final period exemption (i.e. currently (after 5 April 2020) nine months) overlaps with the last two years that you have lived in the property, so the only principal private residence (PPR) relief you will be eligible for are these two years mentioned (it is not clear to me what you mean by 'and has been used by our family as a home. Maybe if I knew more details I could tell you that more PPR relief is available). If you would have exchanged contracts before 6 April 2020, you could have been eligible for the 'letting exemption', but it is now too late for that. If you have spent money during the 30 years improving the property (e.g. putting in an extension, conservatory etc.), this expenditure can reduce the £155,000 gain. Expenditure incurred on the purchase of the property 30 years ago, and expenditure incurred on the current sale of the property (e.g. stamp duty land tax, solicitor’s fees and estate agent’s fees) can reduce the £155,000 gain. Of course, you also have the capital gains tax annual exemption (i.e. £12,300 for 2020-21) to reduce the gain. But the bottom line is, yes, you are liable to capital gains tax when you sell for £200,000.