Capital Gains Tax calculation

Rob_insonCrusoe

In the summer of 2002 we bought a flat for our 2 older boys as they were both studying in the same city. The flat was purchased in the name of our middle son who lived in it for 5 years before moving on to study elsewhere. Come this summer he will have been out of the flat for 3 years. My questions are as follows:

1) If we sell the flat this summer, am I right in thinking our son will have no CGT to pay since it is his main residence and the final 3 years always qualify for relief regardless of whether or not you live there?

2) How do we estimate the CGT if we sell in, say, 2 years time. Let's say that the flat is sold for £150k having been bought for £100k and we have spent £5k on improvements.

3) Does it make any difference to the calculation in 2) if our middle son stays in the flat during these next 2 years or not?

Thanks!

silvercar

1) If we sell the flat this summer, am I right in thinking our son will have no CGT to pay since it is his main residence and the final 3 years always qualify for relief regardless of whether or not you live there?

Yes.

2) How do we estimate the CGT if we sell in, say, 2 years time. Let's say that the flat is sold for £150k having been bought for £100k and we have spent £5k on improvements.

The actual calculation should be done in months, but I'll use years for ease.

10 years ownership. exempt for 5 years PPR and last 3 years, so exempt for 8 out of 10 years.

gain = 45k (though you can also deduct buying and selling costs).

exempt = 8/10 x 45 = 36k.

remaining gain = 9k.

CGT allowance, currently 10.1k so no CGT to pay.

(actually if the other son was paying rent, then the middle son would be entitled to letting relief, which would reduce the gain still further, but you don't need this here as the remaining gain is less than the CGT allowance.)

3) Does it make any difference to the calculation in 2) if our middle son stays in the flat during these next 2 years or not?

You always get relief for the time it is your principal private residence (PPR) and the last 3 years of ownership, so moving back in at the end of the ownership just to get relief is unnecessary.

chappers

Briefly that is correct there wouldn't be any CGT due .
Given your figures CGT in 2 years time would be worked out as follows roughly

Bought for 100k with 5k renovation sold for 150k taxable gain 50k

Less:

Residential relief of 5 years plus last 3 years out of 10 years owned (8/10)*50k =40k
lettings relief of 40k
personal CGT allowance of £10100(currently)

total relief £90,100

so no CGT

as you can see it will be quite a few years before any CGT would be due,or a large hike in house prices.

The above is very rough as it is worked out in months and not just whole years but I'm sure you get the jist.
the only thing that makes a difference is if the son who's house it is is resident then that counts increases his residential relief.

CLAPTON

chappers wrote: »

Briefly that is correct there wouldn't be any CGT due .
Given your figures CGT in 2 years time would be worked out as follows roughly

Bought for 100k with 5k renovation sold for 150k taxable gain 50k

Less:

Residential relief of 5 years plus last 3 years out of 10 years owned (8/10)*50k =40k
lettings relief of 40k
personal CGT allowance of £10100(currently)

total relief £90,100

so no CGT

as you can see it will be quite a few years before any CGT would be due,or a large hike in house prices.

The above is very rough as it is worked out in months and not just whole years but I'm sure you get the jist.
the only thing that makes a difference is if the son who's house it is is resident then that counts increases his residential relief.

for letting relief to apply, one has to assume that the rental income was being declared to the HMRC... no evidence for that