Please help me work out my tax position on the home where I first lived in 1984. The title deeds were signed over to me in around 1998 when I divorced.
About five or six years ago I was made redundant, so I moved in with my partner and rented out my house. I told my mortgage lender at the time and my mortgage was converted into a buy-to-let mortgage.
I cleared the mortgage and sold the property in 2019. Do I have to pay capital gains tax (CGT)? I paid tax on the rental income but I am getting conflicting advice about whether I have to pay CGT.
Normally, when you sell your main residence you do not have to pay CGT as you are entitled to principal private residence relief. However, if at some point it was your second home or used as a buy-to-let property, as was the case here, then any sale may be subject to CGT.
The rules are quite complicated, but broadly any periods where the property was your main residence are not chargeable and any periods where it was not your main residence are chargeable. However, as it was your main residence at some point, your final nine months of ownership are not chargeable even if you were not living there.
You may also qualify for letting relief, which can reduce the amount of tax payable if you let out part or all of your home after you have lived in it. You cannot claim private residence relief and letting relief for the same period, which means if you were letting the property out when you sold it, the last 18 months of ownership qualify for private residence relief rather than letting relief.
The CGT rate for property sales is 18% for basic-rate taxpayers and 28% for higher- or additional-rate taxpayers. However, you can use your annual CGT exemption, which is £12,000 if you sold in the 2019/20 tax year (£12,300 in the 2020-21 tax year).
This can all be very complicated. If you are still in doubt, then speak to HM Revenue & Customs (HMRC).
Patrick Connolly is a certified financial planner at Chase de Vere.
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