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Losing sleep!!!! Capital gains or not
Babycreature
Posts: 11 Forumite
Please Heeeelp I haven't slept in 48 hours. I received a horrid letter from the tax man warning me to "co-operate". Basically he wants info on properties I have bought/sold, dates etc etc. In 1992 I bought a house to live in. In 2004 I wanted to downsize, so put house up for sale. No buyers. I borrowed on the first house and bought a second house which I moved into and spent money making it habitable (gutted it). All the time I was hoping for a sale for the first house. After 15 months in new house I put that up for sale due to neighbourhood problems. When it sold I moved back to the first house. Put some of the money of the sale into reducing the mortgage and lived off the rest. What do I owe the tax man? Friends keep saying capital gains tax. Although I did not inform tax office of the move at the time, I do have council tax and utility bills that I was living in the new property for 15 months. How do I sort this horrible mess out. I am not working and absolutely broke. Any help would be appreciated. Chris
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I would say you owe no capital gains tax on the sale as it was clearly your primary main residence for the 15 months before the sale and the last 3 years of ownership of your primary residence are always tax free. The only problem is if you didn't declare it as your primary residence although your actions show it was if the tax man tried to pursue you. Did you make a large gain? You have a capital gains tax allowance of around £10k although less in 2004 meaning you wouldn't pay tax on first 10k of gain anyway.I'm proud of my advice, if others want to look I say enjoy the show!0
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You would have too check but i am led to believe as long as it was your main residance before sale for 6 months it is not liable for capital gains.
Maybe best to see an accountant??0 -
Were either of the houses rented out and did you register for income tax on this, or were both houses your primary and secondary residences?Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️⭐️0
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Thank you so much for your advise. Being so law abiding this has knocked me for six.0
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From what you say, you have no CGT on the sale of the second property.
When you come to sell the first property you MAY have a CGT laibility for the time it wasn't your home. It will depend on the figures and the tax laws in place at the time you sell. Based on current rules it would be a proportion of the gain you have made, based on months of ownership and for how long it wasn't your main residence. Being the fraction would be small and your CGT allowance, I wouldn't worry about it yet.I'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.0 -
Were either of the houses rented out and did you register for income tax on this, or were both houses your primary and secondary residences?
Thanks for reply Firefox. Neither house was rented. Did not register for income tax as I didn't think it was necessary at the time. I likened it to what use to be called a bridging loan. You borrow money on the first home to finance second home. When first home is sold the bridging loan is paid back. In my case, it was the second home that sold first so I moved back into the original home. Hope that makes sense .0 -
From what you say, you have no CGT on the sale of the second property.
When you come to sell the first property you MAY have a CGT laibility for the time it wasn't your home. It will depend on the figures and the tax laws in place at the time you sell. Based on current rules it would be a proportion of the gain you have made, based on months of ownership and for how long it wasn't your main residence. Being the fraction would be small and your CGT allowance, I wouldn't worry about it yet.
Thank you Silvercar. It still worries me though that I'm going to have to find a huge load of money to give to the tax man immediately by way of a demand.0 -
I would say you owe no capital gains tax on the sale as it was clearly your primary main residence for the 15 months before the sale and the last 3 years of ownership of your primary residence are always tax free. The only problem is if you didn't declare it as your primary residence although your actions show it was if the tax man tried to pursue you. Did you make a large gain? You have a capital gains tax allowance of around £10k although less in 2004 meaning you wouldn't pay tax on first 10k of gain anyway.
Hey Thanks for advise, I actually made a LOSS on the property as I bought it at auction and it needed more work than was originally estimated. It all came to light once I moved in and started to decorate. None of the problems were mentioned in the survey which was done by previous owners representative. Previous owner moved aborad. So, I had the gable end demolished, put new foundations in and rebuilt. Also the same under bay window but these were underpinned. The roof spars were rotten etc etc,0 -
As described and as others have said no CGT because you have Principal Private Residence relief (PPR). My understanding is that the test of whether PPR applies is a factual one, having 2 houses over a period of time, the taxman wants you to show it was actually your home.
But you'll also have them for house 1 won't you? They may be helpful if they show utility usage at 2 far exceeds usage at house 1 or if you had an empty house exemption at house 1 for council tax.I do have council tax and utility bills that I was living in the new property for 15 months.
Probably more useful to establish it was your home would be to show that it was your correspondence address for your bank, credit cards, dvla for drivers licence or car tax and conversely that you did things like divert your letters through the GPO or cancel/transfer your broadband from house 1 to 2 or notification to your home insurance that house 1 was empty. Given the number of people we all need to notify when we move you shouldn't have a problem convincing them it was your home
I don't think you need an accountant at this stage, just reply to the letter explaining it as you have on here. If they then ask you for proof, supply them with copies of documents supporting it.
EDIT: Was typing whilst you posted. If you didn't make a profit, tell them that as well but again they may want bills to prove it. Don't lose sleep, really no need to worry at all you've just aroused their suspicion and they're entitled to ask the questions.0 -
If you've made a loss, you may be better off keeping house 1 as your PPR for the duration. On house 2, no profit = no gain = no CGT.I'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.0
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