Q I'm struggling to work out what capitals good points tax I'll owe on the sale of a property.I purchased it in April 2007 for £250,000 and it was my solely property.
It was my predominant residence from April 2007 till Dec 2013. I then rented out half of the flat whereas I nonetheless lived there – from Jan 2014 till December 2015. In January 2016 I moved out and let the entire property, as I married and purchased a home with my spouse. If I promote the property for £400,000 in Might this 12 months what's going to I owe?
I perceive calculate non-public residence reduction for the interval I lived in it on my own, however I’m unsure if I'm additionally entitled for lettings reduction for the 2 years I shared the property with the tenant – and in that case, calculate it. The examples I see solely appear to have the property totally rented, or shared – and by no means a mixture as I've had. Are you able to assist?
TR
A Sure I can, however largely because of this very useful instance from Which? that explains how lettings reduction is calculated for the reason that guidelines modified in April 2020.
Earlier than then, lettings reduction was obtainable on the capital acquire of a property that had beforehand been the proprietor’s house however was subsequently let. Since April 2020 – as you might be clearly conscious – lettings reduction is accessible provided that the proprietor lived within the property with the tenants so now not the place tenants are the only occupiers.
What hasn’t modified is the necessity to calculate how a lot non-public residence reduction you might be entitled to earlier than you'll be able to see how a lot lettings reduction you get. For you, you're going to get non-public residence reduction on 50% of the acquire (81 months of sole occupation plus 9 months divided by 180 months of possession). Assuming a complete acquire of £150,000 (£400,000 minus £250,000) – £75,000 of that won't entice capital good points tax (CGT).
An additional 8% of the acquire will probably be tax free due to lettings reduction (24 months of letting minus 9 months divided by 180 months of possession). So the overall quantity of the acquire which will probably be tax free is £87,000 leaving £63,000 liable to tax however £50,700 after knocking off your annual CGT allowance of £12,300 (assuming that you simply haven’t already used it up within the 2022-23 tax 12 months).
The quantity of tax you pay relies on which tax bracket you might be in as soon as the taxable acquire is added to your taxable revenue. If meaning you're a basic-rate taxpayer, the tax price is eighteen% however if you're a higher-rate taxpayer, it's 28%. Regardless of the price, the tax must be paid inside 60 days of promoting – or in any other case disposing of – the property.
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