Frank bought a property in 1990 and lived in it as his main residence for eight years until 1998. Then he bought a second property which immediately became his main residence and the first property was let from then until its sale in 2004.
The gain on sale of the first property amounted to £210,000.
| 1990-1998 | 8 years (actual occupation) |
| 2001-2004 | 3 years (last 3 years of ownership) 11 years |
| Gain exempt - 11/14 x £210,000 = £165,000 | |
The balance of the gain (£45,000) relates to the period from 1998 to 2001. The property was let during this period and had previously been Frank’s main residence so that the letting exemption is available. Although the gain relating to this period amounts to £45,000 the exemption for letting is limited to a maximum of £40,000.
Overall £205,000 of Frank’s gain is exempt leaving only £5,000 chargeable to tax and this is subject to taper relief and the annual exemption so that it is unlikely he will have to pay any CGT.