Q&A - How will CGT be calculated when we sell rented out property we once lived in?

08/09/2014

Q: With the help of our father who paid the deposit, my brother and I bought a small terraced house together in 1999 when we were students in London. Our father loaned us the deposit and acted as guarantor and we managed to get a mortgage which my brother and I paid by working evenings and weekends and taking a lodger.

My brother moved out to live with his girlfriend four years ago and I moved out shortly afterwards when I changed jobs and moved north. We kept the house and rented it out to cover the mortgage payments but are now considering selling it. It has been valued at 250% more than we paid for it, what Capital Gains Tax will we have to pay?

A:  Capital Gains Tax (CGT) will not be applicable to the entire difference between the purchase price and selling price. As joint owners both you and your brother will have separate CGT allowances and the taxable gain will only apply to the time when the property was rented out. You may also qualify for lettings relief.

As well as all of the above, in determining the gain the loaned deposit, original purchase price, legal fees for buying and selling, stamp duty paid at the time of purchase and estate agent’s fees for selling can all be deducted from the sale proceeds. If you made any major improvements to the property, such as a new kitchen, loft extension or replacement windows, you can also deduct the cost of those. Additionally you may be able to deduct interest on your father’s loan for the deposit, depending on what arrangement was made with him.

As you can see, the calculation for your situation is not entirely straightforward, but the solicitor handling the sale for you will easily be able to work it out.

Victoria Wilson

Victoria Wilson

Partner

A Partner and Part of our Probate, Wills, Trusts and Tax team in Oswestry