CGT query

utab007

My understanding is Private Residence Relief can be claimed if I lived in a property which was my main residence. I lived in property A & B, so it was my main residence without any election. My calculations show no CGT is payable, but little nervous about selling two in same tax year as I may have overlooked something. Do I have anything to worry about?

I did try discussing this with my previous and new accountant, but I seemed to understand it better than both of them. My new accountant seem to think I can only claim PRR for only 1 property as main residence and not both. That makes no sense to me as I have lived in both.

Here is my scenario:
Property A:
I bought a house in Jan 1999 for £80k and sold it for £250k in July 2010. I lived here to Oct 2004 and then let it out until it was sold in Aug 2010.

So gain = £250k - £80k = £170k
(68 + 36) / 139 x £170k = £127.19k PRR
£170 - £127.19k = £42.81 - £40k LR = £2810
However, £2810 is less than my £10.1k CGT allowance, so no CGT payable

Property B:
In Oct 2004 I bought this property for £320k and lived there to Mar 2008. I moved to my existing property and let this out. The property sold for £375k in Mar 2011.

As this falls just within the 3 year rule I don't think any CGT is payable. And I still have £7k CGT allowance left over and this one is also in joint names with my wife who has her full £10.1k allowance.

CLAPTON

how you you get '68 months for properry 1? ..looks nearer 66 to me

you say
'In Oct 2004 I bought this property'

but you say 'this one is in joint names'

maybe clarify the facts here

did 'you' buy or did 'we' buy
and did 'you' live there or did 'we' live there

utab007

CLAPTON wrote: »

how you you get '68 months for properry 1? ..looks nearer 66 to me

you say
'In Oct 2004 I bought this property'

but you say 'this one is in joint names'

maybe clarify the facts here

did 'you' buy or did 'we' buy
and did 'you' live there or did 'we' live there

Comes to 68 months as I bought end of Jan 1999 (11 months) and moved out 4th Oct 2004 (9 months). So 11 + 48 + 9 = 68 months. I think that's right.

Yes, property 2 was in joint names, so that is a mistake. It's the royal 'we'.

I hope that makes it clear. Thanks Clapton

CLAPTON

property 1 was owned only by you?

property 2 was bought jointly and both lived there?

utab007

CLAPTON wrote: »

property 1 was owned only by you?

property 2 was bought jointly and both lived there?

That's correct. I lived at property 1 with my wife, but it was only in my name.

Yes, property 2 was in joint names and we both lived there.

GuidoT

Can I ask what the £40K LR is for on property A.

I do not know too much about this, but have some similar calculations to do, so it would be useful to know - thank you.

If you want this checked go here, there are some very knowledgeable people here:
http://www.taxationweb.co.uk/forum/

utab007

GuidoT wrote: »

Can I ask what the £40K LR is for on property A.

I do not know too much about this, but have some similar calculations to do, so it would be useful to know - thank you.

If you want this checked go here, there are some very knowledgeable people here:
http://www.taxationweb.co.uk/forum/

My accountant wasn't able to help, so in the end I decided to check directly with a tax adviser at HMRC. They have confirmed my understanding is correct, so good news.

The £40k LR is the letting relief. The letting relief is calculated as follows : (total months property was let / total months property owned) x property gain.

You must take the lowest figure, so if this calculation is greater than £40k you use the lowest figure of 40k for letting relief. I hope that makes sense.

Guido, I would be happy to help with your calculation if you give me details.

jimmo

Your computations look fine to me.
With Capital Gains Tax all Inspectors of Taxes will have passed exams when training but the majority rarely will hardly touch the subject again in their careers. HMRC has a relatively small number of specialists who handle the vast majority of cases or are available to give advice to their colleagues when required.
Apart from large practices, it is easy to imagine that Accountants, individually, rarely have Capital Gains issues to deal with and therefore lack day to day experience.
There is absolutely nothing wrong with selling 2 properties in the same tax year and claiming Private Residence Relief on both of them in your circumstances. However you are in more danger than most of being selected for an Enquiry by HMRC for that very reason.
Looking at earlier posts you have made it seems that this is not the first time you have sold a property and claimed Private Residence Relief and there has to be some danger that HMRC may well delve deeper to examine whether your various moves have had a prime motive of exploiting the relief available.
On this forum I believe every word you say but if I were still a taxman, I like to think I would catch you out if you were "at it".
That, I think, is your potential problem. If HMRC come looking will your accountant be able to handle HMRC for you?
If he hasn't got the (CG) basics right how will he be able to handle an HMRC specialist?
Unless you think you can handle HMRC yourself you should at least consider bringing in specialist help.

jimmo

LR = Lettings Relief.
Details are all here.
http://www.hmrc.gov.uk/helpsheets/hs283.pdf

utab007

Thanks for your comments Jimmo.

I suspect 2 property sales in same tax year would be flagged up by their radar, but I have nothing to hide.

I would be happy to represent myself if it was challenged, but I think that's unlikely. What are they going to challenge?

jimmo

Politically speaking, you seem to have that back to front.
HMRC don't so much challenge a particular point but ask you to justify your own self assessment. So the onus will be on you to prove your claims to Private Residence Relief are correct in principle and that your capital gains computation is correct.
The reality is, of course, that the risk assessment processes will highlight particular aspects but the legal niceties remain that the onus of proof will be on you, not HMRC.
As we seem to agree, selling 2 properties in the same tax year and claiming Private Residence relief on both will put you in much more danger of an Enquiry than most.
If the Enquiry Officer who is allocated the case does his homework properly then before he sends you the formal Notice of Enquiry he will already be aware of your history of purchases and sales of properties, any previous claims to Private Residence Relief and whether the respective purchase and sale values of each property fairly reflect the open market.
Depending on what his research turns up the Enquiry Officer could suspect you of being a property developer who is trying to disguise his property development business behind living in the properties and letting them.
However, no Enquiry Officer worth his salt would simply blurt out an accusation. He would ask you to justify your claim to Private Residence Relief and see what develops.
The taxman's preferred option would then be an interview to discuss your personal reasons for each transaction. In those types of interview, examining what you did and why, your accountant would struggle to justify opening his mouth and I have told more than a few to shut up and none of them objected or complained about me.
I like to think that if you are fiddling, knowingly or unknowingly, I would catch you out. I also like to think that if everything is above board I would be able to see that and back off pretty quickly.
Your problem is that you already have an accountant who seems to know less about Capital Gains Tax than you do but the person who is telling you that is some anonymous Wally on an internet forum.