Q&A 90 – Capital Gains Tax On A Rented Flat

Question 90

Frances asks: “I own a flat, bought in 2001 for £137k as my only residence and its now valued at £400k, implying the CGT will be astronomical? Any idea how much CGT I’ll pay?”



Q&A 90 – Capital Gains Tax On A Rented Flat – Shownotes

Frances asks:

Hi Moneystepper,

I’d be very grateful for some advice. I own a small flat which I bought in 2001 as my only residence. I lived in it for some time, but since getting married I have rented the flat out for around four or five years (i.e. five out of 15 years). The property was bought for £137k and is now valued at around £400k so the profit is good, implying the CGT will be astronomical?

Any ways around this? The property is currently in my name only – can I gift half of it to my husband so he can use his CGT allowance too? I also have a two-year old child, can I put some of it in her name also?

Another idea is to move back to the flat to make it our primary residence, but I fear that this loophole no longer exists?

Any thoughts you have at all on how to minimise the dreaded CGT would be very much appreciated. Many thanks.


Gifting Half To A Spouse Or Children

Hi Frances,

Gifting half to your husband will help as you can both use your personal allowances to reduce the bill. However, remember that this needs to be a true gift – and therefore no consideration can be made and no liability transferred.

Gifting to children doesn’t lead to a tax liability, but children inherit the original value of the property (£137k) as their base cost, and therefore isn’t really beneficial.



PPR Relief

You can move back into the flat and from the date that you do this, it will once again become your primary residence. However, for 4-5 years, the flat was still rented out.

Thinking about the numbers, you may not be too bad. Assuming a sales price of £400k, cost base of £137k and associated selling/buying fees of £8k, if you transfer half to your husband, you’d have a combined profit of £255k.

For PPR, it was your primary residence for 10 out of the 15 years of ownership. Therefore these 10 years (plus an extra 18 months) fall into PPR. This means your new tax basis would be £255k x (15 – 10 – 1.5)/15 = £59,500.

You will then also be eligible for letting relief up to a maximum of £40,000 (see the rules in the post above).

This leaves a gain of £19,500 which is actually lower than the combined total of your personal allowances and therefore you may have no capital gains tax due at all in your situation.

You’ll need to run these figures accurately for values, dates, costs, etc, but they’ll probably not be a million miles out given the information you provided.

I hope that helps.




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