Capital Gains Tax Assistance Please?

horace972897

Hi There

I unfortunately (or fortunately i sold it at all in the current climate) didn't manage to sell the house i was renting out till after the April 5th deadline so i'm in the 18% CGT boat.
However we did live in the house from May 1994 (when we bought it) till Dec 1999 as our only property before then starting to rent it out in 2000 and selling in August 2008. Will i get any relief for that and how do i work it out?

Thanks in advance

Jon

silvercar

You get relief for the time it was your principle private residence (PPR) and the last 3 years of ownership.

So you lived in it for 67 months + 36 mnths = 103 out of a total of 171 months.

Once you calculated your gain (exclude buying and selling costs) you are exempt from CGT on 103/171 the of the gain.

You also get letting relief worth the min of:
a) 40k
b) the relief you got when it was your PPR
c) the PPr relief for the time it was let.

Subtract the letting relief as well.

Then deduct the CGT allowance (9.6k) if not used elsewhere.

Include it in your tax return for 2008-09 and the tax will be due by 31 Jan 2010.

Incidentally it is the day of exchange that counts, not the completion day.

horace972897

Hi

Thanks for your reply. Could you point me at any documentation on this on the HMRC website as i didn't think i was entitled to letting relief so i've obviously not read the doc properly? I'd like to calculate what i'll owe so i can be prepared.

I don't think that it will be massive amounts but knowing would certainly make me feel better.

Also being cheeky with your help do you think that: Replastering, Fitting double glasing and fitting carpets so that sale would go through count as improvements?

Thanks again

Jon

johnllew

jon-w wrote: »

Could you point me at any documentation on this on the HMRC website as i didn't think i was entitled to letting relief

http://www.hmrc.gov.uk/manuals/cg4manual/CG64710.htm

Also being cheeky with your help do you think that: Replastering, Fitting double glasing and fitting carpets so that sale would go through count as improvements?

The cost of double glazing may well do, if you have not already claimed a deduction against rental income.

horace972897

Thanks for the reply.

One more if i may....

I'm assuming that the guide you linked to me to may not apply for the tax year i'm liable for (i.e. Taper relief is mentioned however that has now gone and its now a flat rate of 18%). However that said i'm guessing that if Private Residence Relief was going too it would have been mentioned in the statements where the new 18% was mentioned?

(hope that makes sense)

Cook_County

Jimmo, now, I am confused! Unless the OP "banked" the taper relief, surely it does not exist?

However we can't tell who the beneficial owners are; you talk about "we" living in the house but "I" sold it. Does it have 2 beneficial owners or one?

horace972897

Hi

I don't think there will be any taper relief.
Sorry my English being plop there. We bought the house, as in my wife and I and we moved out and we then sold it after renting it out.

My calculations after all of your assistance are as follows:

Bought house in May 2005 (Yeah not only my English but my dates were all wrong as pointed out by my OH)
Paid £35500 (Jeez those were the days....)
Cost of buying £500 Legal fees
Paid £2400 in 2007 for double glasing before putting on market
Paid £2000 in Estate agent and legal fees to sell in 2008 (July)
Sold house for £93000 in July 2008

Months between May 95 and Dec 99 (When we moved into new house) = 55
Plus 36 for last three years
Total months owned = May 95 - July 2008 = 158

So Captial Gain =
93000
-500
-2400
-2000
-35500
=52600
Take off PPR =
52600
-((55+36)/158) * 52600 (Equals 0.5759 * 52600 = 30294.94)
=£22305.06

Then divide by 2 as joint owned with Mrs
Therefore my tax is (£11152.53-£9600) * 0.4 (I pay 40% Tax) EDIT: Ooops this should be * 18 % for both of us shouldn't it???
And Wifes is (£11152.53-9600) * 0.2 (She Pays 20%)

Does that sound right?

silvercar

AFAIK double glazing is a maintenance issue not a capital expenditure. Even if you replace single glazing with double, its still maintenance (something to do with double being as cheap as single these days.) So personally I don't think you can include the double glazing costs.

Also you've forgotton letting relief.

My calculation:

Gain = 93k -£2,500 -35.5k=55k

PPR = (55+36)/158) * 55=31,677

Letting relief = lower of (40k, PPR relief=31.667,share of gain when let=91/158*55=31.677) = 31.667k

As the total of the PPR and letting relief exceeds the gain there is no CGT to pay.

You also didn't include both your 9.6k personal CGT allowances.

Jimmo is technically correct (as always). On the subject of letting relief is:

"The amount of private letting relief that can be claimed cannot be greater than £40,000, and it must be the lowest of the following three values:

· £40,000;
· the amount of private residence relief that has already been claimed;
· the amount of any chargeable gain that is made due to the letting; that is, this is the amount that is attributed to the increase in the property value during the period it was let."

My use of minimum was shorthand for maxed at 40k but the lowest of the three catagories.

horace972897

Thanks Silvercar

Well i thought i'd bite bullet and ring tax office to confirm the calcs

They told me that i can include the double glazing however its pretty much immaterial as the letting relief i'd forgotten wipes out all of the captial gain by over 10K so all is sweet with the world and i owe nothing

Anyway thanks to everyone who assisted - much appreciated.

If i can be of help in my area of expertise pls shout (Computers networks etc)

LarryL_3

Hi there
I'm in a similar situation to member you are replying to, but I thought that no relief was now available (post Apr 08) for previous time lived in the residence.
It seems from IR that the only allowable deductions are improvements, legal costs in buying and selling and annual exemptions. I would love to hear it confirmed that I'm wrong as it could save me a lot.
I also lived in my second property for around 5 years and then rented it for about 6 years prior to selling in May of last year (2008), (when of course it was no longer my PPR) and am faced with a huge CGT bill (especially considering I re-mortgaged the property to release equity).
Any clarifications?
thanks

silvercar wrote: »

You get relief for the time it was your principle private residence (PPR) and the last 3 years of ownership.

So you lived in it for 67 months + 36 mnths = 103 out of a total of 171 months.

Once you calculated your gain (exclude buying and selling costs) you are exempt from CGT on 103/171 the of the gain.

You also get letting relief worth the min of:
a) 40k
b) the relief you got when it was your PPR
c) the PPr relief for the time it was let.

Subtract the letting relief as well.

Then deduct the CGT allowance (9.6k) if not used elsewhere.

Include it in your tax return for 2008-09 and the tax will be due by 31 Jan 2010.

Incidentally it is the day of exchange that counts, not the completion day.

Elaine_Wilson

LarryL,

The abolition of indexation and taper relief from April 2008 do not affect claims for private residence relief nor lettings relief. So your calculation is

Selling price net of sale expenses, less
purchase price including costs to give
gross gain.

Then deduct private residence relief. (in your case about (5+3)/11 = 8/11ths of the gain).

Then lettings relief. Which is the lower of -

The gain,
The amount of the PPR
£40,000.

This will give you your chargeable gain from which you can deduct your annual exemption if it has not already been used.

Post more figures if you want us to work it out for you.

Incidentally, the fact that you have remortgaged will not affect the CGT calculations.