How much CGT should I pay on a flat that I both lived in and rented out?

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Q I am struggling to work out what capitals gains tax I will owe on the sale of a property. I bought it in April 2007 for £250,000 and it was my only property.

It was my main residence from April 2007 until Dec 2013. I then rented out half of the flat while I still lived there – from Jan 2014 until December 2015. In January 2016 I moved out and let the whole property, as I married and bought a house with my wife. If I sell the property for £400,000 in May this year what will I owe?

I understand how to calculate private residence relief for the period I lived in it by myself, but I’m not sure if I am also entitled for lettings relief for the two years I shared the property with the tenant – and if so, how to calculate it. The examples I see only seem to have the property fully rented, or shared – and never a mix as I have had. Can you help?

A Yes I can, but largely thanks to this very helpful example from Which? that explains how lettings relief is calculated since the rules changed in April 2020.

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Before then, lettings relief was available on the capital gain of a property that had previously been the owner’s home but was subsequently let. Since April 2020 – as you are clearly aware – lettings relief is available only if the owner lived in the property with the tenants so no longer where tenants are the sole occupiers.

What hasn’t changed is the need to calculate how much private residence relief you are entitled to before you can see how much lettings relief you get. For you, you will get private residence relief on 50% of the gain (81 months of sole occupation plus nine months divided by 180 months of ownership). Assuming a total gain of £150,000 (£400,000 minus £250,000) – £75,000 of that will not attract capital gains tax (CGT).

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A further 8% of the gain will be tax free because of lettings relief (24 months of letting minus nine months divided by 180 months of ownership). So the total amount of the gain which will be tax free is £87,000 leaving £63,000 liable to tax but £50,700 after knocking off your annual CGT allowance of £12,300 (assuming that you haven’t already used it up in the 2022-23 tax year).

The amount of tax you pay depends on which tax bracket you are in once the taxable gain is added to your taxable income. If that means you are a basic-rate taxpayer, the tax rate is 18% but if you are a higher-rate taxpayer, it is 28%. Whatever the rate, the tax will have to be paid within 60 days of selling – or otherwise disposing of – the property.

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