The Daily Telegraph - Property - - Property Clinic -

Con­tin­u­ing the se­ries in which our Clinic ex­perts pro­vide a guide to those thorny is­sues that can leave the un­wary out of pocket. This week, Mag­gie Flem­ing on ex­emp­tions to Cap­i­tal Gains Tax (CGT): We are sell­ing our rental fl at af­ter 12 years and are fright­ened of be­ing clob­bered by CGT. Are there are any loop­holes? There are a num­ber of use­ful re­liefs and ex­emp­tions you can claim. For any­one sell­ing a prop­erty, much will de­pend on whether or not it has ever been their home. If it has, you can claim Prin­ci­pal Private Res­i­dence (PPR) re­lief for any pe­riod when it was your only or main res­i­dence, plus the fi nal three years of own­er­ship in all cases.

This means that, if you have al­ways lived there – or moved out less than three years be­fore sell­ing up – you will not have to pay any tax at all.

If you moved house and then rented out your old home, you could have ad­di­tional re­lief on top of PPR. This ex­tended re­lief can ex­empt up to a fur­ther £ 40,000 of any gain not al­ready cov­ered by PPR. The re­lief is al­lo­cated to a per­son, rather than a prop­erty, so if a hus­band and wife own a prop­erty jointly, they could have up to £80,000 knocked off the gain in this way. That’s an op­tion for us. Is there any­thing else? There are other re­liefs that ap­ply to all prop­er­ties and not just to those res­i­dences qual­i­fy­ing for PPR. If you owned the prop­erty be­fore 1998, you will qual­ify for in­dex­a­tion al­lowance, which was based on the Re­tail Price In­dex and was in­tended to strip out the infl ation­ary el­e­ment of the gain. This was abol­ished in 1998 ( when infl ation looked dead as a dodo) and re­placed by ta­per re­lief, which, af­ter you have owned the prop­erty for three years, knocks 5 per cent per an­num off the gain each year un­til year 10 – so the gain will be re­duced by 40 per cent af­ter 10 years. This is in­tended to en­cour­age and re­ward long- term own­er­ship rather than short- term spec­u­la­tion. Can we drag any­thing else back? You should never over­look the an­nual CGT ex­emp­tion – cur­rently £8,500. As spouses ( and, from this De­cem­ber, civil part­ners) can trans­fer as­sets be­tween them­selves with­out tax con­se­quences, it makes sense to gift a half share to your spouse or civil part­ner be­fore a sale so they can make use of their an­nual ex­emp­tion as well as your own. You need to do the cal­cu­la­tions fi rst, but this could re­sult in a lower over­all tax rate. How­ever, the gift must be made with no strings at­tached. Mag­gie Flem­ing is a di­rec­tor of Isis Fi­nan­cial Plan­ners and a mem­ber of the Char­tered In­sti­tute of Tax­a­tion.

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