How much tax will I have to pay?
I purchased from the council a flat for £67,000 under the ‘right to buy’ in 2003. However on the open market it would have been higher. I started letting it out in 2006 when the value was assumed at £240,000 and there have only been a few months where it has not been let. I wish to sell it now and would like an idea of what, if any, tax may fall due taking into account my CGT allowance and private letting relief. It was my main residence between 2000 and 2003 when I rented from the council.
Arthur Weller Replies:
You haven't told me what its present market value in 2012 is, i.e. how much you are likely to receive for selling it now. It is also not clear from the question whether you lived in it between 2003 and 2006. I will assume that its present market value is in the region of £292,000, and that you did live in it as your main residence from 2003 to 2006. Your capital gain is 292 - 67 = 225. Spread over 9 years (2003 to 2012), your gain is £25,000 per year (you can now understand why I chose £292,000!). The first 3 years are exempt due to principal private residence relief, and so are the last three years, due to the ‘last 36 months’ rule. The middle 3 years (2006 to 2009) have a capital gain attributed to them of £75,000, but are eligible for the letting exemption of £40,000, so you are left with a gain of £35,000. Deducting the annual exemption of £10,600, you are left with a gain of around £25,000. A basic rate taxpayer pays capital gains tax at 18% (£4,500) and a higher rate taxpayer pays at 28% (£7,000).
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