Capital Gains on Property: Help!!!

badmanj

I'm finding myself becoming increasingly confused - hopefully someone can shed some light on this...

So I lived in a property with my family for ten years. We then bought a new house and moved to that. We held on to the old property and rented it out for 8 years.

We now want to sell the old property and we're trying to work out our tax liability on it.

I've read on various sites, differing content.

I do know we are entitled to 20,200 allowance since the house is in joint names.

But I've also read about something called 'Letting Relief' which gives me the impression we *may* be entitled to 40,000 each before tax is payable. Is this the case? If so, is this on top of the personal allowance of 20,200?

Finally, I've also read something about a sliding scale for liability based on how long we lived there +36 months. This would mean that since we lived there for 10+3 years, we should only pay CGT on the proportion that's left - ie 5 years = 1/3 of the profit. Is there anything in this or is this an old system?

If anyone could shed some light on this, it'd be very much appreciated! I'm very confused!

Thanks,

Jamie.

badmanj

Thanks for the info. I'll read that helpsheet.

I can't provide all of the information you need because we've not yet sold the property, however, I can provide what I think are realistic figures:

date of purchase: November 1991
cost: 110,000. 20K of this was our deposit.
date moved out: Feb 2002
date letting started: Apr 2002
date of sale: July 2010
proceeds of sale: 280,000

If anyone can crunch this, that'd be fantastic. In the meantime I'll digest the info on that sheet.

Cheers,

Jamie.

00ec25

owned Nov 91 - Jul 2010 = 225 months, gross gain during ownership 280,000 - 110,000 = £170,000

private residence relief Nov 91 - Jan 02 = 123 months plus deemed occupancy for last 36 months Aug 07 - Jul 10
total PRR 123 + 36 = 159 months

period not lived in therefore liable to CGT under second home rule Feb 02 - Mar 02 = 2 months

Letting relief period (excl deemed occupancy period) Apr 02 - Jul 07 = 64 months

Letting relief = LOWEST of :
a) PRR £170,000 x (159/225) = £120,133
b) gain during let period £170,000 x (64/225) = £48,355
c) max permitted letting relief cap £40,000 per owner
therefore letting relief capped at £80,000 because of joint ownership (40,000 x 2)


Taxable gain
Note joint ownership applies

Gross gain - PRR - (x2) letting relief - (x2) annual personal allowance because of joint ownership
£170,000 - 120,133 - 80,000 - 20,200
= -50,333 ie net gain is ZERO

ie your gain is fully relieved and you have no CGT to pay (assuming you have no other gains in tax yr 10/11 which use up some more of your personal allowance) .

You are also allowed to claim the costs of buying and selling (EA & solicitor fees) but for simplicity i have not included these costs

badmanj

Thanks - that's very much appreciated and also wonderful news.

One final question - though it's theoretical in my case since it seems I have no tax liability here in any case - but it may help someone else (for completeness): The house is in joint names (my wife and I) so does the Letting Relief increase to 80K overall or is it capped at 40K?

Cheers,

Jamie.

00ec25

letting relief is per owner, therefore 40,000 cap per owner

John_Pierpoint

Just when I think I understand letting relief here comes an extra complexity.

This situation could apply to a good friend of mine who converted a Victorian ruin, and in the process created a self contained flat in the basement.

Yes it does make sense - both individuals have made a 30K capital gain which is less than the 40K letting relief - so job done as far as the basement flat goes. Presumably it makes no difference that they are married as it has been the principal private residence of them both throughout since buying the property in 1992 ?

If the girl friend had owned half the property BUT only moved in (say) 1997 (or vice versa for the politically correct police), then she would not qualify for any letting relief as she had been living in her own flat (say) prior to 1997?

If the building had always been two flats - how can it have been one principal private residence ? So does this only apply to letting out "part" of your home?

John_Pierpoint

Many thanks.
I will enjoy winding them up next time I see them.
In actual fact, before they bought the building, and before the steps up to the front door collapsed; it had a crack in the back wall ulou could roll coins through & every room in the building was a bed sit with its own bell on the door jamb.
This one could run and run.;)

osh76

The advice given here is really great, am really impressed by the time taken to answer the questions, any advice appreciated on our issue.

I have one house which has been rented out for 9 years, its the only house I own (we currently live in my partners house) but me and my partner have found another house that we want to buy and have sold her house but still haven't sold mine. We want to sell her house, buy the new house so we dont lose the house we want or the sale of her house and then just sell mine asap. If we buy the new house together will I be liable for Capital Gains Tax because at that point our new house will mean my little house is my 2nd home? Sorry if this is confusing. thanks Josh

00ec25

osh76 wrote: »

will I be liable for Capital Gains Tax because at that point our new house will mean my little house is my 2nd home?

see the above calculation!

your house has been rented out for 9 years, use that in the calculation - based on months, as CGT works in months not years. It is not your second home, it is your ex PRR which you now rent out and no longer live in, and is therefore part of your rental business, it is not your home!

The fact you live for free (?) in your partners house is irrelevant, you no longer live in your (only owned) ex-house, so it is liable for CGT - but you can deduct PRR and letting relief to determine how much you will owe, if any, in CGT

tiamaria

I'd really appreciate it if someone could do a little number crunching for me too:o


It's a long story but these are the relevant facts

date of purchase: June 2005 (lived in as a tenant since Nov 1994, then bought the property off council)
cost: 20,500
date moved out: Aug 2005
date letting started: Aug 2005
date of sale: July 2010
proceeds of sale: 90,000 approx

Many thanks

00ec25

tiamaria wrote: »

I'd really appreciate it if someone could do a little number crunching for me too:o

:idea: use my worked example in #4 above
it's your tax return and you need to understand how you got the numbers you are claiming!!!!!!
post up your result and we will tell you if you've done it right