House Doctor: 'I'm selling a flat that I have been renting out. Do I owe any tax?'

Question: My fiancé and I have lived together for more than two years and plan to marry next year. Having moved into his house, I plan to sell my old flat which I've let out for nearly two years. I've had a decent £240,000 offer but am wary about paying a lot of capital gains tax. Can I avoid this?

Jayne Tenyer, Leeds



Answer: Stop worrying about your tax bill immediately – there's not a bean to pay. Capital gains tax (CGT) is payable on any "gain" when you sell or give away any significant financial asset such as a group of shares or a buy-to-let property that has risen in value. How much you pay depends on the size of the gain, your personal allowance – you can make £10,600 of gain or profit free of tax in the 2011-2012 financial year – and its rate, currently at 18 per cent for basic-rate taxpayers (28 per cent for higher). However,a tax break introduced under Margaret Thatcher's premiership will exempt you from any CGT payments.

During the early 1980s the then Conservative Employment Secretary Norman Tebbit urged jobless workers to up sticks and leave regions bereft of employment opportunities and head for those parts offering work – the so-called "on your bike" clarion call.

However, this threw up a problem: the sluggish housing market meant many seeking jobs elsewhere in the country couldn't easily sell their existing home and often had to let their property out for a year or so.

Aware of the injustice of taxing those who had followed the the Government's advice by moving to a new area for work and buying a new house while becoming – crucially – a reluctant temporary landlord with their original home, a "three-year" rule was introduced.

To avoid depriving the workers of their tax-free capital gains status, legislation created the "time to sell" rules giving a three-year CGT exemption.

"It means that if someone else rents your own main property, for tax purposes, the last three years of any period of ownership are treated as though you were still living there, and thus still qualify for tax-free status," says Patrick Stevens, tax partner at Ernst & Young accountant.

"But while there won't be any CGT to pay, make sure you've paid income tax on all the rental monies you've been paid since letting it out."

housedoctor@independent.co.uk

Discover more property articles at Homes and Property
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Client Services Executive - Enfield, North London

Negotiable: Ashdown Group: Client Services Executive - Enfield, North London ...

Recruitment Genius: Telesales & Customer Service Executive - Call Centre Jobs

£7 - £9 per hour: Recruitment Genius: Are you outgoing? Do you want to work in...

Ashdown Group: Finance Manager - Covent Garden, central London - £45k - £55k

£45000 - £55000 per annum + 30 days holiday: Ashdown Group: Finance Manager - ...

Ashdown Group: Systems Administrator - Lancashire - £30,000

£28000 - £30000 per annum: Ashdown Group: 3rd Line Support Engineer / Network ...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn