House Sale Taxation

[rich47]

If I sell a house which is not my residence, but which I rent out, am I liable to Capital Gains Tax? If so how is that assessed?
Any and all assistance gratefully received.

[New Judge]

Yes you are. Very roughly you will be taxed (at xx%) on the profit you made from it (the difference between the price you paid for it and the price you sold it for). The first £11,000 of profit is tax free. The remainder will be taxed at 28% if you pay income tax at the higher or additional. If you are a basic rate taxpayer you will pay 18% on any amount below the basic rate tax threshold and 28% on anything above this.

[rich47]

Many thanks Judge. What if the house was inherited; how is the tax assessed?

[New Judge]

On an assessment of its value on the date you inherited it,

[LittleSquidge]

If at any point it was your principal private residence (PPR) you can claim PPR relief and Lettings Relief.

Has it been used in a trade? - if so, Entrepreneur's Relief (ER) may be available to tax the whole gain at 10%.

The calculation will be as so:

Sales proceeds (less any costs of sale e.g. solicitor's fees) = X
Less probate value = (X)
Less any costs of capital improvement = (X)
Less PPR relief = (X)
Less lettings relief = (X)
Less annual exempt amount (2016/17) = (11,100)
Equals amount subject to Capital Gains Tax (CGT)

The basic rate band is (assuming 2016/17 and no restriction to personal allowance) £43,000. Deduct your total income for the year from this, whatever is left is the amount of capital gain that can be taxed at 18%.

The rest thereafter at 28%.

If you have a spouse and are yet to sell the property, you can transfer half of the property at a "no gains / no loss" transfer - meaning no CGT is due. However, you can then utilise two annual exempt amounts of £11,100 and potentially two basic rate bands (if available).

Make sure you have a chat with a tax adviser first!