Do I Need To Pay Capital Gains Tax?

Johnny23

I am in the Royal Navy and bought a property many years ago that we have lived in on and off due to me being drafted to different locations. Because I am away alot I rent it out. About 4 years ago I remortgaged it to buy another property that I lived in with my family until last year when I moved to live abroad with my job for about 3 years. Both properties are now let out. I would like to sell the first property to pay off some of the mortgage on the second. I have an interest only mortgage for £100,000 and it is probably worth about £150,000. Do I have to pay the 18% CGT on this or is their any concessions for servicemen due to having to move around with our careers. Thanks

John_Pierpoint

This is the part of the legislation you are trying to claim. Its intention is to allow those who could not live in their property of choice, to still have a foot on the property ladder.
I have no practical experience of making such a claim, though it does not appear that the "retirement" home has to be the one occupied on retirement from the forces.

I expect someone with that practical experience will be along soon.


Job-related accommodation
If you live in accommodation that is job-related and you also own a
dwelling house that you intend to occupy as your only or main residence,
the dwelling house you intend to occupy is treated as actually being
occupied by you as a residence during the period in which you intend to
occupy it, even if you never actually live there. This means that you may
nominate that residence as your only or main residence and get relief on the
whole or a part of the gain. Please see the paragraph headed ‘Only or main
residence’ on page 3. If your intention to live in the dwelling house ends,
then the dwelling house is no longer treated as your residence.
Accommodation is job-related if it is exempt from Income Tax for the
reasons set out in Helpsheet 202 Living accommodation.
This extension of Private Residence Relief also applies if you are selfemployed.
The job-related accommodation must be provided by another
person under the terms of a contract that requires you to live in the property
and carry on a particular trade. This extension only applies to residence in
such accommodation on or after 6 April 1983. If you need help, ask us.

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Is my living accommodation exempt from tax?
Some living accommodation provided is exempt from tax. The rules for
exemption are that:
• the living accommodation is necessary for the proper performance of
the duties of your job, or
• you are in the kind of employment where it is customary for living
accommodation to be provided and the living accommodation enables you
to perform your duties better, or
• you face a special threat to your security because of your job, and you live
in the living accommodation as a part of special security arrangements
in force to protect you.
Most company directors cannot claim exemption under the first two
categories. Ask the SA Orderline for booklet 480 Expenses and benefits –
A tax guide or go to www.hmrc.gov.uk if you want more details about this.
The main occupations which satisfy the rules for exemption are:
• agricultural workers living on farms or agricultural estates
• lock-gate and level crossing gatekeepers
• caretakers who live on the premises for which they are responsible
• stewards and greenkeepers who live on the premises they look after
• managers of public houses who live on the premises
• wardens of sheltered housing who live on the premises where they are
on call outside normal working hours
• police officers and Ministry of Defence police
• prison governors, officers and chaplains
• clergymen and ministers of religion, unless engaged on administrative
duties only
• members of HM Forces
• members of the Diplomatic Service
• managers of newspaper shops that have paper rounds
• managers of traditional off-licences, that is, those with opening hours
equivalent to a public house
• in boarding schools where staff are provided with accommodation on
or near the school premises – the head teacher, other teachers with pastoral
or other irregular contractual responsibilities outside normal school hours
(for example, house-master), bursar, matron, nurse and doctor
• veterinary surgeons who live close to the practice in order to respond
regularly to emergency calls
• managers of camping and caravan sites living on, or near to, the premises
• stable staff of racehorse trainers, who live on the premises and certain key
workers who live close to the stables.
Please ask us if you want more details.
http://www.hmrc.gov.uk/helpsheets/2009/hs202.pdf

Johnny23

John, thanks for your reply it was very useful. My interpretation of the rules you gave would be that I could sell my first property while I am working overseas with the Royal Navy and claim that property as my main residence even though I have it rented out at the moment. Therefore I would not need to pay Captital Gains Tax on that property. Is that your understanding?
Thanks again.
Johnny23:)

John_Pierpoint

That was the political intention when the law was changed - As I remember it the landlord of "The Bull" in "The archers" got himself what we now call a BTL.
However in tax law it is the letter of the law, not the spirit, that counts; so you need the advice of someone with recent experience of this situation.

jimmo

Assuming that you are happy that you were living in Job related accommodation then House 1 was your deemed main residence up to the point your acquired house 2.
When you and your family moved into house 2 that became your main (and only) residence. House 1 ceased to be your (deemed) residence the day you moved out of job related accommodation.
When you moved abroad with your job did you move into job related accommodation abroad?
Assuming you did, you then owned 2 houses but only one of them can be the house where you intend to live when you cease to live in job related accommodation and be your deemed main residence. Which one you choose is your choice.
John_Pierpoint has already given you a link to HS283. I suggest you print that off and keep it.
When looking at Capital Gains mortgages have no relevance. Your Capital Gain on house 1 will be the difference between what you paid for it, including expenses of purchase and what you get from selling it, minus expenses of sale.
It will probably work out that, if you take house 1 to be your main residence up to the point you bought house 2, that the combination of main residence relief, which includes the final 3 years of ownership, and lettings relief will cover the Capital Gain and there will be no tax to pay. All the details are in the HS283.
If that does not cover it there may be options to increase the relief available to you on house 1 but they will have a knock on effect by restricting the relief that will be available to you when you sell house 2.
Can you do the sums?

Johnny23

Although the advert says TAX doesnt have to be taxing, I think realistically it is and does. It seems a bit of a mine field open to interpretation of the rules. I bought the first house probably over 20 years ago now for about 47,000 and have lived in it off and on due to working in different areas with my job. Many of these postings have led me to live in naval married quarters in Gibraltar, Scotland, Portsmouth and Plymouth over the years. But I still lived in the house at different stages between these times. As previously stated I remortgaged the house to put down a deposit on the second house and now have a mortgage of 100,000 on it. So depending on how the rules work out, I could be liable to CGT on about 100,000 if I sell it for 150,000. This will obviously depend on whether I can convince the TAX man that I class it as my main residence. As I said it seems complicated.

Jimmo, thank you for your information. Much appreciated.
Johnny23

jimmo

You have a Capital Gain of £100,000.
That is regarded as accruing evenly over your whole period of ownership.
Apportionment of the Capital Gain between exempt periods and non-exempt periods is traditionally by reference to months but, actually, if you use a spreadsheet it is easier to do it by reference to days.
Just in case you don't know how to do that, follow this example.
Type 1/12/06 in cell C3 and 4/4/07 in cell D3.
In cell E3 type in =D3-C3. That will give you a result of 3/5/1900.
Click on cell E3 to highlight it and then click on Format and then cells.
Then click on number. Then cell E3 will become 124.
Periods when you lived in the house are exempt.
Periods when you lived in Quarters are exempt.
Periods when you lived elsewhere are not exempt yet but may well be as periods of absence.
However they may well be periods of letting and that is probably easier to work with.
To progress from here really requires those periods to be identified. Can you do the sums or do you want to give all the relevant dates?