Q I retired 10 years ago and split my time between my holiday home in the Algarve for six months of the year and travelling in my motor home. I do not have a main residence in the UK, but I did inherit a flat which I have rented out for approximately 15 years – although when I have needed to work on it I have lived there.
This year I will be 65 and want to sell the flat and buy a main residence for myself and my wife in the UK. I have always declared any income from the flat on my self-assessment tax return. My question is, will I be liable to pay capital gains tax on the sale of the flat, and if so how will it be worked out as it was an inherited property. MF
A The short answer is yes, you will be liable for capital gains tax (CGT) on any gain you make after selling the flat.
Because the property has never been your home – staying at the property while you worked on it doesn’t count as it being a home to you – you don’t qualify for private residence relief. This makes gains on property you’ve lived in as your home entirely tax-free if you lived in it the whole time you’ve owned it, and partially tax-free if it was your main home only part of the time.
Some people mistakenly believe that they can make the gain on a let property entirely tax free by moving into it and using it as their main home. But this isn’t the case. Making a formerly let property your home for a time will mean you can claim partial private residence relief (as well as lettings relief because the property was let out), but the relief would not wipe out the taxable gain entirely.
The fact you inherited the flat makes a difference to the way the CGT bill is calculated only inasmuch as you use its value at the date of death of the person who left it to you rather than its value when the property was transferred to you.
To calculate exactly what your CGT liability is, and how much tax you will pay, there is a relatively easy-to-use capital gains tax calculator produced by HM Revenue & Customs.
