Capital Gains Tax on rented property?

Question

I want to rent out my property, and move temporarily into other rented property, will i have to pay any Capital gains tax on:

a)The rent i get for my house, even though i will be paying rent out for another property myself

b)If i sell my house without moving back into it, will i be liable for any more capital gains because it has been rented

Answer 1

You will have to pay income tax on the rent you receive, and cannot deduct the rent you will be paying for the other property.

If you sell your own house within 3 years of moving out you will not have to pay any capital gains tax.  If you sell it later than this there might be some capital gains tax to pay.  The part of the gain that is taxable is a proportion of the number of years let over the number of years plus 3 when you lived there yourself.  There is also a further tax free allowance of up to £40,000 for the let period - and there is an annual tax free allowance (currently £9,600) in any case.

Answer 2

CGT is not payable on income.

However, the rents recieved, after expenses, are taxable and must be declared. Renting another property is NOT an expense.

The sale will be liable to CGT, BUT the period when it was your PPR is exempt, and you can get letting relief of up to £40,000, so whether there is tax payable depends on how long before you sell it.

Answer 3

Currently your property is exempt form CGT as it is your principal private residence. If you move out it and sell you will have to apportion your years of ownership for when it is your PPR and not your PPR.

The last three years before the sale will be treated as 'deemed occupation' and you will get PPR.

If you re-occupy before sale you can also get anohter three years deemed occupation for any reason.

If you are working away from home you can also get further exempt periods.

You can also receive lettings relief on the gain - lower of gains in rental period, PPR relief and £40k.

Any gains can also be partially releived by your annual exemption of £9,600.

You will not pay CGT on rent - instead you will pay income tax under Schedule A. You can deduct expenses (inc a 10% wear & tear allowance if furnished) and the interest element of the mortgage so your net profit may not be much.