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.