Tax implications when selling house

[ssiaman]

Hi,

I got married last year. Both me and My wife owned a house prior to marriage. My wifes house is currently rented and she is planning to sell hers very soon.

She bought it for 130k and it worth approx 300k now.

I am just wondering what is the possible tax implications or what the best financial move is if she does either of the following. Is there any way of avoiding CGT in any scenario?

1. Sell her house and use the proceeds to clear my mortgage on my house which I bought 4 years ago.

2. Sell her house and re invest the money gained from the sale in another larger house in which we could both move into and rent out my house.

Any help or advice would be much appreciated.

Regards,
ssiaman

 

[ClubMan]

My wifes house is currently rented and she is planning to sell hers very soon.

She bought it for 130k and it worth approx 300k now.

When did she buy it?
Was she an owner occupier?
For how long?
For how long has it been rented?
Did she pay any stamp duty on it?

If she bought the property as an owner occupier and rented it out within 5 years of purchase then a clawback of stamp duty would apply - i.e. she would be liable for the different between the SD an investor would have paid and what she actually paid (if anything) as soon as the first rental occurred. It's possible that the property was exempt for both investors and owner occupiers though given the purchase price but you'd need to double check.

In terms of CGT the basic rule is that CGT on some portion related to how long it was rented out versus a PPR is assessable for CGT. For example if she owned it for 7 years (x), lived in it for 4 years (y) (in which case the SD clawback rule applies), rented it out for 3 years (z) and then sold it then:

(z - 1) / x = (3 - 1) / 7 = 29% of any gain arising (less allowable expenses, allowances, indexation etc.) would be subject to CGT.

I am calculating this in whole years for simplicity but more precision could be achieved using months or days - ask you tax advisor or Revenue. Note that the first 12 months after vacating the property as a PPR are exempt from CGT.

I am just wondering what is the possible tax implications or what the best financial move is if she does either of the following. Is there any way of avoiding CGT in any scenario?

1. Sell her house and use the proceeds to clear my mortgage on my house which I bought 4 years ago.

2. Sell her house and re invest the money gained from the sale in another larger house in which we could both move into and rent out my house.

Neither of these scenarios have any relevant to CGT and if CGT applies these uses of the money will not emiminate or mitigate any liability.

 

[ssiaman]

Hi Clubman,

Here is the info you were looking for.

When did she buy it? December 1999
Was she an owner occupier? yes
For how long? Dec 99 - November 06
For how long has it been rented? Yes it is rented since november 06. she now ives with me as her principal place of residence.

Did she pay any stamp duty on it? No

Thanks
ssiaman

 

[ClubMan]

OK - no SD clawback since she lived in it for at least 5 years before renting it and if she sells the property before November 2007 then no CGT will be charged on any gain. She should not be claiming owner occupier mortgage interest tax relief on the mortgage since she rented it out in late 2006.