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Capital gains tax


jenevers

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If someone sells their main home to live on a boat, but owns and rents out a 2nd home, then, years later, sells the boat and moves into the 2nd home, would they have to pay Capital gains tax on it if they ever sold it to live on a boat again? 

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I may be wrong, but I seem to remember that once you have lived in a house for a certain length of time it becomes your main home and is not therefore subject to capital gains tax.

I am wrong! I  checked with the HMRC web site and it is only exempt if it has been your main home for all the time you have owned it.

Glad I checked it out rather than giving a bum steer ? 

 

haggis

 

 

Edited by haggis
I was wrong!
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2 hours ago, jenevers said:

If someone sells their main home to live on a boat, but owns and rents out a 2nd home, then, years later, sells the boat and moves into the 2nd home, would they have to pay Capital gains tax on it if they ever sold it to live on a boat again? 

CGT relief is calculated on a pro-rata basis to disallow relief for periods when you didn't live in the house but you will get part relief.

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3 hours ago, haggis said:

I may be wrong, but I seem to remember that once you have lived in a house for a certain length of time it becomes your main home and is not therefore subject to capital gains tax.

I am wrong! I  checked with the HMRC web site and it is only exempt if it has been your main home for all the time you have owned it.

Glad I checked it out rather than giving a bum steer ? 

 

haggis

 

 

The Government changed that a few years ago I think Mr Cameron's reign. Probably as a result of the MP's swapping and doing up on the state then selling and doing it again on another property, all part of the expenses scandal. 

 

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1 hour ago, Detling said:

The Government changed that a few years ago I think Mr Cameron's reign. Probably as a result of the MP's swapping and doing up on the state then selling and doing it again on another property, all part of the expenses scandal. 

 

What has changed though?

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Not an expert warning! I thought that you only paid CGT if you actually made a capital gain or profit? Perhaps if you add the rental profit to the selling price than you could be liable. Second thoughts I think you need to see a tax expert!

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26 minutes ago, Bee said:

Not an expert warning! I thought that you only paid CGT if you actually made a capital gain or profit? Perhaps if you add the rental profit to the selling price than you could be liable. Second thoughts I think you need to see a tax expert!

The rental is income, you will be paying income tax on that, so that should not impact on CGT.  I think something did change with CGT on houses that have not always been your primary residence, recently, well in the last 20 yers, it should all be discoverable on gov.uk I would think.  As said probably the right answer is to get professional advice, rather than asking the Internet!

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If your house is your principal private residence then it is excluded from CGT, unless you have at anytime rented it. You used to be able to claim lettings relief, but this has been discontinued. If you have rented your PPR then CGT is worked out on a pro rate basis, so if for example, you have owned a property for thirty years, and let it for ten years, the CGT is based on the profit gained between the original purchase price, and the sale price. This figure is then divided by the percentage that you have let the property, so 33 percent is the figure the CGT is based on in this example. This is further reduced by deduction of your individual CGT annual allowance. So, if the profit was 100k, the taxable gain would be 33k less 12k annual allowance, so 21k. (As a rough guide)

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It is broadly calculated on a pro rata basis as described above. However, you are given an 'allowance' against CGT if you have lived in it at any time of your ownership. I think the allowance is a minimum of 3 years but don't quote me on that. Theoretically you could move in for a month and claim 3 years (or whatever it is) relief. Revenue and Customs are on to this though, there is established case law where people have tried to avoid CGT in this way, the court decided it was tax evasion, and disallowed the allowance.    

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I would say yes, if you are renting it out then its an investment not a home. You can maybe reduce the tax a bit by living in the house for a while before you sell it but there will be some tax to pay.  Living on a boat is just wonderful, and if somebody is paying you to live in your house whilst you live on a boat what could be better? Whats a bit of tax anyway? People losing their livelihoods and even losing their lives right now whilst we are living on a boat and enjoying it.

 

...................Dave

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See this and others... https://www.luptonfawcett.com/about-us/blog/landlords-should-understand-the-april-2020-changes-to-private-residence-relief/

 

My understanding is that any capital gain over the entire period of ownership is broadly pro-rata'd according to the period of primary residence and letting.  The slight twist is that the final 9 months (used to be 18 months and before that, three years) is effectively exempt.  The liked article refers to any gain made in this period - but I am pretty sure it is just a pro-rata adjustment rather than a separate calculation of gain in that period.

 

If that is correct, the calculations partly depend on whether your period of occupation included the last nine months, as I don't think you can claim twice for the same period.

 

The government is fond of fiddling with the CGT reliefs - so it could easily change again.

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11 hours ago, Machpoint005 said:

In other words, to the OP: ask your accountant. This is what they are for. If she is any good she will pay for herself every year.  

There again not everyone can afford to pay someone £100 an hour, they may prefer to spend rather more of their own time doing appropriate research. All the information that accountants use to advise a client is in the public domain. If many thousands are involved it may well pay to employ an accountant, their experience should enable them to join together different aspects of legislation in order to come to the best decision. If the amount in question is relatively small, it may be better for people to do their own research, providing they are prepared to put the hours in, because these things are rarely simple. 

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25 minutes ago, The Welsh Cruiser said:

There again not everyone can afford to pay someone £100 an hour,

 

Someone who cannot afford the services of a professional accountant probably doesn't need to worry too much about CGT. If they are worried, then not buying expertise is a false economy. See Tacet's post above - an accountant will be up to speed on taxation changes, but a lay person will find it very difficult. 

 

It all depends how you value your own time.

 

 

 

 

26 minutes ago, The Welsh Cruiser said:

If many thousands are involved it may well pay to employ an accountant

Exactly my point.

Edited by Machpoint005
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On 14/05/2020 at 13:00, jenevers said:

If someone sells their main home to live on a boat, but owns and rents out a 2nd home, then, years later, sells the boat and moves into the 2nd home, would they have to pay Capital gains tax on it if they ever sold it to live on a boat again? 

check yourself using the calculator (NB lola already posted it)

https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/disposal-date

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I worked for an accountant for several years, and I don't think anyone charged anything like £100 an hour. CGT is incredibly complex - when worked for the IR in precomputer days we reckoned there was only one guy on Merseyside who understood it... It's easier now, but you'll lose more money trying to work it out yourself than a local accountant will cost you.  Thing is, they know all the wrinkles, everything that might lower your liability, and you don't.

  • Greenie 1
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Accountants are a pretty straight bunch. They help you stay within the law and do things right. Some people think they find loopholes and ways to avoid paying tax. I suspect only the crooked ones (few and far between) do that, and if you want to cheat the taxman its probably best to do that yourself rather than to involve somebody else.

 

................Dave

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3 minutes ago, Jon57 said:

Difference between tax evasion and avoidance is a prison sentence. 

The reality is that the vast majority found to have evaded tax are asked to pay the sum in question plus supplements, 'fines' if you like, for having paid the sums late. Only a tiny proportion of tax evaders are charged with a criminal offence.  

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16 minutes ago, The Welsh Cruiser said:

The reality is that the vast majority found to have evaded tax are asked to pay the sum in question plus supplements, 'fines' if you like, for having paid the sums late. Only a tiny proportion of tax evaders are charged with a criminal offence.  

Bet Al Capone wished that was available ?

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