Rental Property - GCT Liability?

No. Much less. Probably none.

OK, so he bought it, and lived there with both parents for X years, then one died and he lived there with the surviving parent for Y years, and then the other died and he lived there on his own (or with someone else, it makes no difference) for Z years, then he rented it out for R years before selling it, and X+Y+Z+R.

He will be entitled to PRR (private residence relief) of P/10 of the £80k gain (except that actually the gain is first reduced by the expenses involved in buying and selling the place, and by indexation (inflation) allowance up to April 1998). The value of P depends on what R is. If R is less than 3, then P (i.e. all the gain is relieved and no tax is due). If R is more than 3, then P=X+Y+Z+3+Q, where Q=R-3, unless R>8, in which case Q=5.

Is there a simpler way of expressing this? Is it the case that gains are discounted for CGT purposes if they occurred whilst it was his principal residence and for 3 years thereafter if he continued to own it but no longer lived in it?

No, It's the time of occupancy plus the final three years of ownership. This difference could be significant.

tim

So does this mean that if, for example, he owned it for 5 years after ceasing to occupy it, it would be the gain which occurred in years 1 &2 (of the 5) rather than 4 & 5 which would be taxable?

Pro-rata.

So, if he'd owned it for 10 years, does this mean that 2/10 of the gain (less CGT allowance) would be taxable? If so, why does it matter *which* two years it applies to?

I gave a formula. What can be simpler than that? :-)

There is no concept of tying the gain to particular years, because this would require valuations at the sub-period boundaries where there is a change of status. Instead the gain is assumed to have occurred linearly throughout the period of ownership.

That proportion of the gain is "discounted", as you call it, which is equal to the proportion which sub-periods corresponding to use as a main home (PPR - principal private residence) bear to the whole period of ownership. See? I told you a formula is simpler. :-)

What this means is that if it was his home for X% of the time he owned it, then only (100-X)% of the gain is taxable.

If it was never his home, then all the gain is taxable, but otherwise, i.e. if it was ever his home (during the period of ownership in question), then apart from the above pro-rata discount, there are two bonuses given:

The first is that the last 3 years of ownership are treated as qualifying for "home discount" (called PRR - private residence relief), no matter what they were actually used for.

The second is that any period of rental (outside of the last 3 years) also qualify for discount (called Letting Relief), except that there is a cap on it. The relief must not exceed £40k, nor must it exceed the amount of PRR.

So if a house owned for 10 years was lived in for the first year, empty for the 2nd, and rented out for the other 8, and if there has been a £200k gain, then PRR is (1+3)/10 of £200k, i.e. £80k, and LR is 5/10 of £200k, i.e. £100k, but is capped at the lower of £80k and £40k, and hence total relief is £120k so that £80k is taxable (but there will be taper relief etc to reduce this further).

Yes, except that you need to take account of taper relief and/or lettings relief also.

You were the one who was referring to a gain in specific years. I was the one telling you to use a pro-rata method.