Q:Can anyone help clarify this issue or point me in the right direction of where to get advice?
In October 2005 I bought a house with my partner and rented out my home that I'd been living in for 5 years. During the 5 years I'd lived there, it had doubled in value and now I'm worried that unless I sell it next year (ie-within 36 months of moving out) I will have to pay capital gains tax on all of the equity. Even if I only pay CGT on the amount it's gone up while I've been renting it out it could still be a fair chunk as it's gone up about 10% during that time.

I'm really struggling to know what to do as if I sell it before mid December there's also a large redemption penalty to pay on the mortgage but the current tennant has said they will be leaving in around 4-6 weeks. Do I re-let it and face having to give new tennants notice after their initial 6 months contract is up to avoid CGT that may be payable? Or do I put it on the market now and pay the redemption charge? Why do they make it so complicated!!! Any thoughts much appreciated.

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A:Thanks both for your advice, it's clarified it for me and now seems a lot less daunting than it did yesterday!

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A:Sorry should add that this is my understanding of cgt on a property you lived in and then chose to let out. Its based upon what I read on HMRC website last year. I'm not a tax expert and may have miss understood the HMRC guidance.

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A:I don't think you need to worry yet, but you should do the maths and consider selling while there will still be no CGT to pay on it.

Here's the basic sum

the price you paid for the property = A
what it would sell for = B
total number of month ownership = C
Number of months lived in as PPR (Principal primary residence) = D
Number of months PPR exemption (or what ever its called) = 36
letting CGT relief = ￡40,000

So B-A = total gain (E)

E / C = monthly gain (F)

Chargable gain pre relief (G) = F * (C-D-36)

Chargeable gain – relief = G – 40,000. If this is greater than 0 then you have a CGT liability. However you might be able to apply taper relief to this (not sure as the ppr and letting relief is quite generous and it might be instead of taper relief) and you can apply your own personal cgt allowance so until G is greater than 50k you needn't worry (assuming the law remains the same regarding reliefs etc.)

hope this helps

Should you marry your partner you can also look at gifting them half the house just prior to sale to make use of their personal cgt allowance too.

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A:CGT is worked out on the increase in value between buying and selling – "chargeable gain". You can discount the time it was your principle private residence [PPR] and, so long as it was your PPR at some stage, the last 3 years when working out CGT, also buying, selling and capital works costs [improvements rather than repairs], taper relief and your personal CGT allowance.
Some rough and ready round figures. Say after buying and selling costs you made ￡100K after owning for a total of 10 years you'd be able to discount 8/10ths [5yrs living there + last 3] which straight away reduces your taxable gain to ￡20K.
Taper relief is 5%pa after 3 yrs so the figure is discounted by another 35/40% down to about ￡13K when you can use your ￡9.2K personal CGT allowance [assuming you've not sold any other goodies that tax year] meaning your taxable gain will be just under ￡4K and you'll pay tax on it at 20 or 40% depending on your current tax rate.
CGT does have a lot of reliefs but your best bet would be to employ an accountant – they'll probably save you more than their fees in advising you when is best to sell and doing the return for you when you do.

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