Kent Solicitors

Question:

I own a flat which I have rented out for ten years. The tenant has moved out and I do not want to pay capital gains tax. If I moved into the flat, how long would I have to live there before I could sell the flat and therefore not pay capital gains tax?

Answer: It is bit more complicated than that - the gain is apportioned depending on the time you have occupied it (you being deemed to have occupied it in the last 3 years of ownership).

Step1: Working out the capital gain or loss for 2008-09

Work out how much you received for your property

This is normally the amount of money you receive when you sell or dispose of the property.

However, in some cases, you might have to use a different figure, for example:

If you give your property away, you use its ‘market value’ (the price the property might reasonably be expected to fetch if it had been sold on the open market).

If you intentionally sell your property for less than it is worth you use the property’s market value.

If you sell your property to a "connected person", such as a close relative or a company you control, you use the propertys market value.

Your husband, wife or civil partner is a connected person. If you are separated for the whole of the year in which you sell or dispose of a property to them, market value applies. However, if you transfer a property to your husband, wife or civil partner and live together at some time in the tax year in which you make the disposal, you usually won't have to pay any Capital Gains Tax on that disposal.

If you exchange your property for something else, you usually use the value (in money terms) of whatever you swapped it for. Sometimes you may have to use the market value of your property instead - for example if the exchange is with a connected person as above.

Work out how much your property cost

The cost of your property is often the amount you paid for the land, building or lease when you bought or acquired it.

However, in some cases, you might use a different figure, for example:

If you received the property as a gift and there has been no claim for Gift Hold-Over Relief, you use its market value at the time you received it.

If you inherited the property, you use its market value on the date of death of the person who left it to you.

If you sold or disposed of part of the land or property, you use a proportion of the cost.

If you sell or dispose of a lease which has less than 50 years to run, you can normally deduct only a part of the cost. The amount depends on the length of the lease left.

If you owned the property on or before 31 March 1982, you use its market value on that day.

If you received the property from your husband, wife or civil partner when you were living together you usually use the amount the property cost them. You may be able to use the Indexation Allowance if they originally bought the property before 1 April 1998 and transferred it to you before 6 April 2008.

You may also be able to use the 31 March 1982 value if they owned the property then. Contact your Tax Office for more information if you think that either of these applies.

If you have to value an asset when working out your capital gains, you can use form CG34 Post Transaction Valuation Check to ask HM Revenue & Customs (HMRC) to check your valuation.

You should complete and send form CG34 to your Tax Office before you complete your Self Assessment tax return. Please allow at least two months for HMRC to provide the valuation.

Work out how much you spent on buying, selling or improving your property

If you have spent extra money on buying, selling or improving your property, you can deduct certain costs. The following costs can be included:

Fees or commission for professional advice or services, for example Capital Gains Tax valuations and estate agent or advertising fees

Stamp Duty Land Tax and VAT (unless you can reclaim the VAT)

Improvement costs to increase the value of the property (you can't include normal maintenance or repair costs)

Step 2: Applying tax reliefs

Once you've worked out your capital gain so far, you may be able to apply tax reliefs to reduce your gain. These include:

Private Residence Relief

This is a tax relief which makes sure you usually don not have to pay Capital Gains Tax when you sell or dispose of your own home. See below regarding apportioning gain.

Business Asset Roll-Over Relief

This may be available if you sell or dispose of business assets and reinvest the amount you received in certain other business assets.

Entrepreneurs Relief. This may be available if you sell or dispose of business assets.

Gift Hold-Over Relief. This may be available if you make a gift of a business asset.

Step 3: Working out how much to pay

Through step 1 and step 2, you have worked out the basic gain on the property and applied reliefs. If you sell or dispose of other assets in 2008-09, you must repeat these basic steps to work out the separate gain or loss for each asset.


When you have worked out each gain or allowable loss, you add them together to work out the total gain (or loss).

You must claim an allowable loss in order to be able to use it.

You can do this on your tax return or by writing to your Tax Office.

If you have made a total net gain you can reduce it if you have unused allowable losses from earlier years.

You only use enough losses from earlier years to reduce your total gain to the same amount as the annual tax-free allowance (known as the Annual Exempt Amount). The Annual Exempt Amount is 9,600 pounds for an individual for 2008-09.

You should deduct the Annual Exempt Amount from any remaining total gain.

You then work out the tax due. The rate of Capital Gains Tax is 18 per cent for 2008-09.

You do not have to pay Capital Gains Tax if your total gain is smaller than the Annual Exempt Amount.

Apportioning the Gain

Calculate number of days owned = X

Calculate number of days occupied (assume occupied for last 3 years) = Y

Calculate chargeable number of days X-Y=Z

Chargeable gain is total gain multiplied by Z / X

Labels: Capital Gains Tax, renting property, tenant