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 Will I be hit with capital gains tax?

Q Am I liable for capital gains tax if I downshift? And if so how much? I am in the process of selling my first home (bought for ?39,000 in 1994 selling for ?110,000) and have bought a property in Wales for ?44,000.

I have one mortgage as I borrowed against my first home to buy the Welsh property. I have lived in Wales since May 2003. The plan was to pay off the mortgage, live in Wales and invest the remainder.

CJ

A No, you shouldn't be liable for capital gains tax on the sale of your first home provided you sell within three years of moving out of it (and assuming that you lived in it for the whole time before moving to Wales). So to be sure of avoiding a tax bill, you need to sell before May 2006.

If you don't succeed in selling the property by May 2006 - or you didn't live in it for the whole time before moving out - there might be a capital gains tax bill. However, you don't have to pay capital gains tax on the whole gain - only on the fraction of the gain that doesn't qualify for private residence relief. The rules are explained in detail in Inland Revenue Help Sheet IR283 available to download here.


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