Profit on House Sale - Taxable?

[TheChief]

My neighbour, an Indian lady, asked me if profits on the sale of
your house are taxable.

Having always transferred these on to the purchase of another
property, I have never considered this.

If you decide to step off the property ladder, are any profits
made subject to tax of any kind?
If so, how is the amount of profit established if you have spent
money on refurbishment?

Thanks

Phil

[David Woolley]

Post by TheChief
If you decide to step off the property ladder, are any profits
made subject to tax of any kind?
If so, how is the amount of profit established if you have spent
money on refurbishment?

As long as you don't wait too long before selling, and you previously
lived in it continuously, the sale of your primary home is not subject
to capital gains tax. If it does become eligible, special rules apply,
which attempt to proportion the gain on the whole period of ownership
according to part of that time that it wasn't the primary residence.

As it doesn't seem likely that it will become eligible to capital gains
tax, it is probably not worth checking the exact rules. If you want to
see them, go to <https://www.gov.uk/tax-sell-home>. There are various
periods for which you can be counted as living there, when you didn't,
and there are exceptions for very large properties, and where the intent
was to make a capital gain, and living there was incidental.

If capital gains tax was payable you would need to determine what part
of the refurbishment was maintenance, which is allowable against income
tax as it is incurred, and what is improvement, which is allowable
against capital gains tax, on sale.

Note that, where tax is payable, it is irrelevant whether you buy a new
property with the proceeds of the sale.

[David Woolley]

maintenance, which is allowable against income tax as it is incurred

You can't, of course, get income tax relief for maintaining your own home.

[TheChief]

Post by David Woolley

Post by TheChief
If you decide to step off the property ladder, are any profits
made subject to tax of any kind?
If so, how is the amount of profit established if you have spent
money on refurbishment?

As long as you don't wait too long before selling, and you previously
lived in it continuously, the sale of your primary home is not subject
to capital gains tax. If it does become eligible, special rules apply,
which attempt to proportion the gain on the whole period of ownership
according to part of that time that it wasn't the primary residence.
As it doesn't seem likely that it will become eligible to capital gains
tax, it is probably not worth checking the exact rules. If you want to
see them, go to <https://www.gov.uk/tax-sell-home>. There are various
periods for which you can be counted as living there, when you didn't,
and there are exceptions for very large properties, and where the intent
was to make a capital gain, and living there was incidental.
If capital gains tax was payable you would need to determine what part
of the refurbishment was maintenance, which is allowable against income
tax as it is incurred, and what is improvement, which is allowable
against capital gains tax, on sale.
Note that, where tax is payable, it is irrelevant whether you buy a new
property with the proceeds of the sale.

Thanks David

If the property has been let out for a year, but this is in the
middle of long periods of years when this was the primary
property, does that muddy the waters?

Phil

[David Woolley]

Post by TheChief
If the property has been let out for a year, but this is in the
middle of long periods of years when this was the primary
property, does that muddy the waters?

You would be best to answer the questions, on the "you may have to pay
some Capital Gains Tax" link, on the page I gave. However, as I read
it, if it really was only one instance and only one year, that can be
discounted.

I assume the intent is to allow for people living away because of
circumstances in their life, whilst still trying to tax real investment
properties.

[RobertL]

Post by TheChief

Post by David Woolley

Post by TheChief
If you decide to step off the property ladder, are any profits
made subject to tax of any kind?
If so, how is the amount of profit established if you have spent
money on refurbishment?

As long as you don't wait too long before selling, and you previously
lived in it continuously, the sale of your primary home is not subject
to capital gains tax. If it does become eligible, special rules apply,
which attempt to proportion the gain on the whole period of ownership
according to part of that time that it wasn't the primary residence.
As it doesn't seem likely that it will become eligible to capital gains
tax, it is probably not worth checking the exact rules. If you want to
see them, go to <https://www.gov.uk/tax-sell-home>. There are various
periods for which you can be counted as living there, when you didn't,
and there are exceptions for very large properties, and where the intent
was to make a capital gain, and living there was incidental.
If capital gains tax was payable you would need to determine what part
of the refurbishment was maintenance, which is allowable against income
tax as it is incurred, and what is improvement, which is allowable
against capital gains tax, on sale.
Note that, where tax is payable, it is irrelevant whether you buy a new
property with the proceeds of the sale.

Thanks David
If the property has been let out for a year, but this is in the
middle of long periods of years when this was the primary
property, does that muddy the waters?
Phil
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Very loosely speaking, HMRC look at the proportion of the time that it was not the owner's main residence and they multiply the total capital gain by that proportion before taxing it. You only need to know the value at the start and end of the ownership; you don't need valuations along the way.

But it is rather more complicated than that in fact, but not difficult. There are good HMRC leaflets.

Robert

[Tim Woodall]

Post by TheChief

Post by David Woolley

Post by TheChief
If you decide to step off the property ladder, are any profits
made subject to tax of any kind?
If so, how is the amount of profit established if you have spent
money on refurbishment?

As long as you don't wait too long before selling, and you previously
lived in it continuously, the sale of your primary home is not subject
to capital gains tax. If it does become eligible, special rules apply,
which attempt to proportion the gain on the whole period of ownership
according to part of that time that it wasn't the primary residence.
As it doesn't seem likely that it will become eligible to capital gains
tax, it is probably not worth checking the exact rules. If you want to
see them, go to <https://www.gov.uk/tax-sell-home>. There are various
periods for which you can be counted as living there, when you didn't,
and there are exceptions for very large properties, and where the intent
was to make a capital gain, and living there was incidental.
If capital gains tax was payable you would need to determine what part
of the refurbishment was maintenance, which is allowable against income
tax as it is incurred, and what is improvement, which is allowable
against capital gains tax, on sale.
Note that, where tax is payable, it is irrelevant whether you buy a new
property with the proceeds of the sale.

Thanks David
If the property has been let out for a year, but this is in the
middle of long periods of years when this was the primary
property, does that muddy the waters?

The only real muddying it causes is that you will need to declare it on
your tax return[1] if you do one even though there will, almost certainly,
be no tax to pay. I'm not sure if you have to do a tax return if you
don't normally.

If you lived in it as your main home for N-1 years, and let it for 1
year (which wasn't in the last 18 months and wasn't as a result of you
working away from home) then you will pay CGT on 1/N of the gain.

But you will also be entitled to residential lettings relief. Along with
your 11K CGT allowance it's unlikely there will be any CGT to pay unless
the house is VERY big or N is only three or four years.


[1] My understanding is that it's the value of the asset disposed of
that triggers this, not the 1/N share that is taxable. I was in a
similar situation a few years ago where I took over 1.5 years to sell a
house I moved out of (getting caught out by the change from 3 years to
1.5 years at the end of ownership) and I had no CGT to pay but was told
that I had to include it on my tax return.

Tim.

[Pierre www.aribaut.com]

Post by TheChief
My neighbour, an Indian lady, asked me if profits on the sale of
your house are taxable.
Having always transferred these on to the purchase of another
property, I have never considered this.
If you decide to step off the property ladder, are any profits
made subject to tax of any kind?
If so, how is the amount of profit established if you have spent
money on refurbishment?
Thanks
Phil

In which country ?