What is our capital gains tax if we sell to our tenant?
My husband and I bought our house in 2000 for £184,000. We lived there until 2005 when we moved abroad for work. The house has been rented out since 2005 to various tenants. The current tenant has now asked if he can buy at market value of £360,000. We own 2 other properties in the UK which we also rent out. We have a further property which we use as our PPR and it is not rented out. We submit separate self-assessments to HMRC each year and taking out all allowable deductibles, we have just starting paying a small amount of tax on our rental incomes. How much capital gains tax (CGT) are we liable for if we sell to our tenant? Also, is it advisable to sell the other 2 properties before we return to the UK to avoid CGT?
Arthur Weller replies:
From what I can see there should be no CGT when you sell your house for £360,000. The initial gain is £176,000 (£360,000 - £184,000) for both of you, or £88,000 each. Since you have owned the house for 13 years this equates to a gain of £6,770 per year (88 / 13). The first 5 years (2000 to 2005) are exempt, since you actually occupied the property then as your PPR, and the last 3 years of ownership (2010 - 2013) are also exempt due to the 'last 3 years rule'. So there is only CGT for the middle 5 years (2005 - 2010), equating to £33,850 (5 x 6.77). But since you let out the property in those 5 years, the letting exemption (maximum £40,000 each, available to both you and your husband) reduces the £33,850 gain to nil.
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