CGT

[Anthony]

Hi again you clever people!

My former PPR is now let. Purchased 2001 for £48000. I lived in it for 4 years. I introduced it to letting business this year and had it valued at £127500 at that time.

If I have the property remortgaged in around 5 years to £127500 (which will hopefully be possible in 5 years with a bit of sensiblehouse price inflation) and then sell, will my CGT be calculated as sale price - mortgage owed?

Put another way, can I withdraw the business capital (current MV - original purchase price) and place it elsewhere, and thus when selling up minimize my CGT liability?

Thanks in advance.

[plym77]

Hi Anthony

These are two separate issues here and they are not really connected.

1. You can withdraw the capital and do whatever you like with it... buy a fancy car if you like! The key is that you can deduct interest on capital up to the value at first let, namely £127500

2. CGT - If you sell the property, broadly you are looking as the following calculation:

Proceeds

Less Original Cost

Less: Improvement Costs

= Total Gain before Relief

Less: PPR exemption (*see below)

Less: Lettings Relief (**see below)

= Total Untapered Gain

Less Taper Relief

= Gain

Less: CGT Annual Exemption

= Total Gain Chargeable to tax @ 20% or 40%

*PPR exemption - you will be entitled to 4 years (as it was your PPR), plus the last 36 months of ownership - therefore sell within 7 years = no CGT. Sell after 7 years and the exemption starts to dilute the longer you own the property, eg 7/8, 7/9, 7/10 etc

**Lettings Relief - available by virtue of the fact that you have rented out a property that was once your PPR - up to a maximum of £40k per owner - based on tle lower of a) PPR exemption received, gain left in charge and c) 40K (so if you are married and the property is in your sole name, consider putting in joint names pre exchange to sell - thus getting two lettings exemptions instead of one)

Taper relief - available for ownership periods exceeding 3 years post 5 April 1998. ownership of 3 years = 5% discount, 4 years = 10%, and increases by 5%for each complete year, up to a total discount of 40%

Annual Exemption - currently £8800 per year - again, if in joint names - possibly have doubled up this exemption

All in all there are plenty of exemptions available to you. However, the size of your mortgage has no impact on your CGT liability

I hope this helps

Regards

Sherena