CGT on Rental Property

L

Lars

Guest
Hi, I need a little advice off you guys. My Girlfriend and I both have a house, with my g/f recently moving into my house. We are thinking of renting out my g/f’s house for a year but would like to know what she might liable for in relation to Capital Gains Tax. She bought the house 3 years ago for 190k with the current value approx 340k.

I calculated Capital Gains tax as ((20% of 150k)/4) * 3= 7.5k. Since she lived in the house for three quarters of the time since buying the house she is only liable for 1 years CGT.

Does she have a year lea way though? I’ve heard you aren’t liable for Capital Gains Tax for 1 year of the property not been her PPR. So does she have to pay no CGT if she rents for 1 year?

[FONT=&quot]Also would it be more beneficial for her to sale her house and buy a new house which she could rent. In this way she will be buying at current market prices so she’s not liable to pay CGT on her current profit.

Any advice would be much appreciated.

thx.
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hi, the last 12 months are taken as ppr ie from july 06 to july 07. if there were periods of rental before this date the proportion would be calculated on a pro rata basis.
 
Just thinking out loud here, but have you considered renting a room to her, or vice versa. I'll attach a link, but as i see it, you could recieve over 7k pa, tax free and she could offset as a rental expense.
 
Thx Guys,

What about my final question? ............ Would it be more beneficial for her to sale her house and buy a new house which she could rent? In this way she will be buying at current market prices so she’s not liable to pay CGT on her current profit.
 
Lars, your assumptions are wrong in several respects - for example, if your girlfriend has a CGT liability, she will not be able to avoid it simply by ploughing the sale proceess into buying another property. She also faces a possible stamp duty clawback if she rents out the house. If you search recent threads in the property investment & tax forums, you will see that most of your questions have already been answered repeatedly in recent months. I would suggest that you should also get proper professional advice as the amounts involved in CGT etc are potentially significant.
 
I would never get so obsessed with tax savings to the detriment of your overall financial position - ie just because you pay 20% of 300k now instead of say 400k that doesn't mean you should automatically sell now. overall the tax saving is 20k - but in real terms you get either 240 k or 320 k .
You also have to factor in the SD on the new house, Austioneer fees etc etc, personally if you [ as a couple ] have decided to have a rental property - i'd sit on the one you have and save yourself fees, hassle.....
 
Ubiq has raised the potential issue of stamp duty clawback. That needs to be looked at first. Second on what you have said, if g.f moves to your place and declares it as PPR then she will get the last 12 months of ownership as 'deemed ownership' once she has any occupation. (This could be the NEXT 12 months, not necessarily the past).

She could view the situation as 'uncertain' and keep the house as her PPR once she can show 'occupation' (which is not 24/7/365) and avail of Rent a Room which is a significant relief.

If she is definite about the plans, then before she moves, she should gear up the borrowings whereby the interest will be deductible against the rent.
 
WizardDr said:
...then before she moves, she should gear up the borrowings whereby the interest will be deductible against the rent.
Click to expand...

This doesn't sound right. Interest is only deductible if the proceeds of the loan have been used to acquire improve renovate or extend the property - borrowing for the sake of it is therefore pointless from a tax planning viewpoint.
 
1. In a scenario where a PPR becomes an investment property, how exact does the calculation of CGT-applicable time need to be? Is it calculated right down to the exact number of days that the property is rented out or is number of months adequate? e.g. if a property is a PPR for 5 years and two months and is then rented out for 13 months and 12 days?

2. Can stamp duty paid (at second time buyer/investor rate) be deducted from the CGT-able amount?

Thanks,
Budapest
 
You cannot offset stamp duty against gains for CGT purposes if that is what you are asking.
 
Hi guys . Just joined this site with one question_
Is stamp duty paid on a second property deductable for CGT .
Hope im asking this question in the proper forum
 
There's a big difference between including stamp duty as part of your costs and offsetting against CGT owed.

Trivial Example:

Bought for 300K + stamp of ~12K. Sold for 400K.

Offset against CGT: (400-300) * 20% = 20K - 12K = 8K owed

Include as cost CGT: (400-312) * 20% = 17.6K owed
 
Yes, what I meant to say is that stamp duty paid cannot be offset against CGT due.
 
Fair enough. I assumed that you meant that it could not be factored into the CGT calculations at all.
 
I wasn't very clear in my initial post, mea culpa.

When I look at the info you posted, I wonder does it cause confusion, in that when I see 'stamp duty' and 'legal fees' in same breath, I generally think about the stamp duty on a mortgage, as opposed to stamp duty on the actual purchase.
 
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