CGT Private residence relief

Hal0 · 2 February 2010 at 3:58PM

Hi,
I would be grateful for any help.
Wife and I presently attempting to calculate our CGT liability on a rented second home that we once lived in. I am little unsure on one aspect of CGT calculation and would appreciate your help.
When looking at private residence relief Helpsheet 283 states

The amount of relief is the lowest of:
• the amount of private residence relief already calculated, or
• £40,000, or
• the amount of any chargeable gain you make because of the letting.

Is the “amount of private residence relief already calculated” that relief that is allowed for the period when the house was classed as our principle private residence , plus, that given according to the 36 month rule?
Also, when calculating the chargeable gain made during the letting, does the letting period have the 36 months deducted from it?

Thanks for your help

John_Pierpoint · 2 February 2010 at 4:14PM

Also, when calculating the chargeable gain made during the letting, does the letting period have the 36 months deducted from it?

Yes if you managed to sell it with the tenants in residence?

Hal0 · 3 February 2010 at 4:24PM

Many thanks Jimmo for your consideration of the issue.

According to my (computers) calculations we should have the lowest relief according to option 1( ie the amount of private residence relief already calculated) whether the 36 months is included or not. However, if we cannot apply the 36 months then we pay about £4000 more in CGT . . .says my computer.

Directing me to relevant part of the the manual is a great help. My difficulty will be in interpreting it!

Hal0 · 4 February 2010 at 2:30PM

Many thanks Jimmo.

I ‘ve read section 223 Amount of Relief from the manual and it does appear that the 36 month period is included in assessing the “relief already given” and the “chargeable gain in the letting period”.

Your example confirms it and as I see it ………

Letting relief = 3years as PPR + final 3 years = 6years

6/10th of £100,000 = £60,000 is the letting relief and is exempt
4/10th of £100,000 = £40,000 gain in letting period and thus chargeable

Relief on the £40,000 is the lowest of:

Relief already given (£60,000)
£40,000 (for single ownership)
Chargeable gain in the letting period (£40,000)

Either of the last two options removes the CGT liability.

Please let me know if I’ve completely misunderstood . Though I’ll be banging my head on the keyboard!

Hal0 · 11 February 2010 at 6:01PM

Thanks for the reply Jimmo and correcting the term I used - I do understand how important it is to be accurate in these cases.
I did a spreadsheet computation based on us selling the rented house in Aug 2010 for £220,000.
After purchasing the house in 1990 we lived in the house for 1 year before going abroad to work as Crown Servants (perhaps this may shed a completely different light on our liability - having written to HMRC I'm hoping that they will tell us that this affects our liability . . . to our benefit).
Whilst we were abroad we rented the house for the greater part of the time except for a periods when it was unoccupied or we had short holidays in it (1year), this house is still rented but the tenants have decided to leave in the near future, hence the decision to look at its possible sale.
In 2005 we returned from abroad and bought and occupied the house we now live in.

Purchase price of house £72,000

Selling price of house £220,000
Total period owned (years) 20
Total period when PPR (years) 2
Total relief given as PPR + 3years 5

Total gain from purchase £148,000
Gain over period when not PPR (chargeable gain) £111,000
PRR £37,000
Gain after reliefs £74,000
Annual exempt amount (£10100 X 2) £20,200
Chargeable caplital gain after reliefs and AEA £53,800
CGT payable @ 18% £9684

Does this make sense. Once again m appreciation for your for your help.

KPR11 · 1 March 2010 at 12:06AM

Hal0 wrote: »

In 2005 we returned from abroad and bought and occupied the house we now live in.

When was the last time you occupied the house and when did your overseas service end? The time that you spent overseas as Crown Servants would qualify for PPR.

s223(2) and (3) allows the following reliefs for deemed occupation:

(a) The last three years of ownership (which you guys have considered)

And also the following reliefs provided the absence is both preceded and followed by a period of actual occupation:

(b) Up to three years of absence for any reason;
(c) Any period spent working abroad; (this I believe is relevant to you) and
(d) Up to four years of absence whilst working in the UK.

Assuming you last occupied the house c2004 you should have no or minimum CGT liability as all the time you were abroad and rented the house till 2004 qualifies for PPR under actual and deemed occupation then you will get your letting relief for 3 years 2005 to 2007 and then the last 3 years from 2008 - 2010. However, I will need more information before I can work anything out.

Please note: though I have tried to be as accurate as possible. these calculations are based on a lot of assumptions and have been hastily done (and may contain errors) and are based on my understanding of the current legislation (though I need to double check) - this may no longer be the case. The legislation may change in the future. Please seek professional guidance from your accountant.

Hope it helps!

KPR11 · 1 March 2010 at 12:11AM

jimmo wrote: »

With a bit of luck we’ll get you down to no tax chargeable.

Could not have put it better!! particularly as OP has c£20k of AE to play with!

Also wanted to clarify that letting relief is the lowest of:
1. £40k
2. PPR relief
3. Gain attributable to period let (excluding any deemed occupation included in PPR)

almond · 29 February 2012 at 9:54AM

hi
I know this is an old thread but wondered can you help or suggest the correct area i post in
partner and ex sold house stc
27,500 to partner
25,000 to ex
before outstanding mortgage 1k
he has'nt lived in house for 12 years but paid mortgage every month so i reckon his profit is 12k
does he have to pay tax on that? i have read hmc etc and can't work it out
most of the money he is going to make is going into the house he lives in with me (but in my name)
thanks so much if you can help

00ec25 · 29 February 2012 at 1:13PM

almond wrote: »

hi
I know this is an old thread but wondered can you help or suggest the correct area i post in
partner and ex sold house stc
27,500 to partner
25,000 to ex
before outstanding mortgage 1k
he has'nt lived in house for 12 years but paid mortgage every month so i reckon his profit is 12k
does he have to pay tax on that? i have read hmc etc and can't work it out
most of the money he is going to make is going into the house he lives in with me (but in my name)
thanks so much if you can help

for future reference it is best to start a new thread in this board as it avoids people answering the original q from 2 years ago rather than your question!

in your case...

his "main home" must, under tax law, be the same as his spouse if married to them, if not married, then his main home is a question of the facts of where he actually lives as his "main" home. so in a marital split situation, then this cannot be the ex house as he has now moved out, even if he does not actually own another property and eithers rents another place or lives with someone else but does not share the ownership of their property

mortgage is irrelevant, the 27,500 figure for his share is possibily also irrelevant if that is the split of the equity rather than his share of the value of the gain. Don't know where you got the 12k figure from

his CGT gain for tax purposes is the difference between the original purchase price and what it sold for (less EA and legal fees). That gain is then split between the owners, so if it was jointly owned with his ex then 50/50 , if owned as tenants in common with the ex then the split is in accordance with whatever was each person's share - this may or may not be 27,500 in his case

- For the entire time he lived there as his main home that time period is 100% exempt , so if he owned it for 20 years , moved out 12 years ago then 8/20ths of the gain is exempt.

- for the remaining 12/20ths he is also entitled to claim a further 3 years deduction because it was once his main home

- so, in this example, we are now down to 9/20ths of the gain is liable for CGT. Work out this value and then deduct his personal allowance of £10,600 from that figure. The net result is the gain on which he will pay CGT @18% and/or 28% depening on his total taxable income in tax year 12/13 (given the sale is STC so not yet completed)

CGT Private residence relief

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