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Q I bought my flat in 2006 and then moved in with my fiancé in 2007. We intend to marry within 12 months. We both live in his house with the mortgage solely in his name, while I rent out my flat. The tenants are now interested in buying it. Should I hold on to the flat in the hope that house prices will increase, or should I sell it before we marry so that I'm not stung by capital gains tax? VM
A The advantage of selling is that you can avoid capital gains tax (CGT) altogether. Provided you sell the flat within three years of moving out of it you should be entitled to what HM Revenue & Customs calls "private residence relief". This makes any gains on a property that was your home – or that you nominated as your "main home" – tax free. From a tax point of view, another advantage of selling before you marry is that once you are married you can only have one main home between you, and that will be the one in which you and your prospective husband currently live. So marriage means you lose your private residence relief on the flat.
The threat of a rise in the rate of CGT from 18% to up to 40%, as well as a drastic reduction in the amount of tax-free gains an individual can make – currently £10,100 – might also convince you that selling is the best option. Having willing buyers in place without the need to pay an estate agent also adds weight to the argument in favour of selling.
Sadly, it is impossible to say whether you should hang on to the flat in the hope that house prices will rise, as you need to know what the potential tax bill would be to be able to calculate the kind of house price rise you would need to offset it.
A The advantage of selling is that you can avoid capital gains tax (CGT) altogether. Provided you sell the flat within three years of moving out of it you should be entitled to what HM Revenue & Customs calls "private residence relief". This makes any gains on a property that was your home – or that you nominated as your "main home" – tax free. From a tax point of view, another advantage of selling before you marry is that once you are married you can only have one main home between you, and that will be the one in which you and your prospective husband currently live. So marriage means you lose your private residence relief on the flat.
The threat of a rise in the rate of CGT from 18% to up to 40%, as well as a drastic reduction in the amount of tax-free gains an individual can make – currently £10,100 – might also convince you that selling is the best option. Having willing buyers in place without the need to pay an estate agent also adds weight to the argument in favour of selling.
Sadly, it is impossible to say whether you should hang on to the flat in the hope that house prices will rise, as you need to know what the potential tax bill would be to be able to calculate the kind of house price rise you would need to offset it.
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