Property Tax Question

Correct. This is not "property tax", by the way, it's Capital Gains Tax.

There will almost certainly be no tax to pay either, provided "later on" doesn't mean "very much later on" (decades rather than years) or the property has sustained an immense gain.

First, compute your gain. This is the price you get for selling it minus the price you paid for buying it, but you also subtract the expenses of acquisition and of disposal (e.g. surveyor's, lawyer's, and estate agency fees but not the costs or expenses in connection with loans).

You also subtract an inflation adjustment. Up to April 1998 this was "indexation allowance" representing the amount by which the notional face value of the acquisition cost (including expenses) in April 1998 exceeded that in the month of acquisition. The exact factor depends on which month of 1989 you bought it (this will be somewhere between 0.369 for December and 0.465 for January - see table in

After April 1998 indexation allowance was replaced by "taper relief". For this, you first subtract all the other reliefs (see below) and losses and then you "taper" (i.e. reduce by a factor) the remaining gain, if any. The factor depends on how many full years the property has remained in your ownership since 6th April 1998. The first two don't count (unless you owned the property before March 1998 in which case only the first *one* doesn't count). For example, if you were to sell today, this would involve 6 whole years, of which 5 would count. Each year is worth a 5% discount (up to a maximum of 40%). So if your gain after reliefs was £40k, this would be reduced by 25% to £30k.

Finally, you deduct the annual exempt amount (if you haven't used it already for those shares you've sold), which this year is £8200. The rest is then taxed at 10%, 20%, or 40% depending on your tax banding.

Now for the "see below" bit: The most important relief you would be entitled to is Private Residence Relief. This is calculated by multiplying the gain you've already computed by a factor obtained by dividing the number of months during which the property qualifies for Private Residence status by the total number of months of ownership. A month qualifies if the property was your Principal Private Residence during it (probably during all of it - not sure about this) or if it was one of the last 36 months of ownership. Hence the special cases, where a property was your home during *all* of your ownership, or during all except some or all of the last 3 years, when any gain is totally exempt from CGT. Suppose you sold in 2007, after 18 years of ownership during the first 12 of which it was your home. Then (12+3)/18 of the gain would be deducted as PRR, so only 1/6 of the gain would be taxable.

At least, that would be the position of during years 13 to 15 the property was a "second home". As it was let, however, you're also entitled to Lettings Relief, which in this case is worth 3/18 of the gain, but with a ceiling of £40k (though if the property was jointly owned with others, each co-owner could get up to £40k of LR). There is also a ceiling at the level of the PRR itself. You can't get more years of LR than of PRR, and your LR can't be more than £40k. So if you were to sell in 2022, after 33 years of ownership, your PRR would be

There are two important issues to consider if you're thinking of waiting many years:

(1) If prices go down, there will be less gain. This may mean there will be less tax to pay, but there will also be less left over for you afetr tax.

(2) The tax rules might change to your disadvantage. For instance, Lettings Relief might be abolished. Even Private Residence Relief might be restricted if not done away with altogether.

Links to the relevant IR leaflets here

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