Capital Gains tax

sue_sue_2

Hi,

Not sure if this is in the right place but here it goes..

Four months ago a HMRC investigation was launched on me for not paying capital gains tax, something which I had never heard Of until the letter arrived. Im not to sure what is actually going as its confusing me and my sister is dealing with it for me, but here's the situation,

In 1995 I moved into a council property, I bought this property in 1998. I lived here until 2004 when I bought a bigger house. We did not have much luck selling the place, so we let it out to my husbands freind and his family, they went down as our tennants however we did not make a profit as we agreed for them just to give us the cost of the morgate. In 2007, my husbands freinds moved out of london therefore ending the tennancy. We placed the property on the market in april 2007 and sold it in february 2008, good riddance !!

In 2010 I sold my house and moved into another property which I bought, ive lived there ever since.

My question is, what is capital gains tax in normal english ? from what i've said am I liable to pay it ?

Also, the investigating officer wants proof of my expendure from 1998 until 2008,I have no idea why but she's asking for proof of how much I spent on food bills in certain months, and I dont have this proof and have the worst memory, can I get around this in anyway.

I know this is long winded, can any one help ?

Thank you

MrBeans

In principle if you buy a house which is not your main residence for £200,000 and sell it for £250,000 you have made a capital gain of £50,000. This £50,000 is subject to capital gains tax. The first £10,000 or so is tax free, but the remainding £40K is taxed at the CGT rate in force at the time.

It's more complicated if you used to live in the house, and you can reduce the headline gain if you spent money eg improving the property.

However, since you are new to CGT I'd suggest you look at the HMRC CGT pages and then take a trip to your local Citizens Advice Bureau who should be able to go through it all with you.

00ec25

oh dear - right to buy has bitten back

CGT
the gain is the difference between the original purchase price (that means the RTB discounted price in 1998) and what you sold it for in Feb 2008. You are liable for CGT on that gain but can claim various things to reduce the size of the gain down to what is called the net taxable gain, its this lower figure that you actually pay tax on

you can claim 100% exemption for the entire period you lived there as your main home plus you can deduct your personal allowance (£10,600) and the legal & EA fees you paid when buying and selling it as well

you have owned this property for 10 years and you say it was once your main home then was let between 2004 - 2007 so you are additionally entitled to claim letting relief but this can't overlap with the final 3 years so your timeline runs:

a) 1998 - 2004 = 6 years exempt as main residence (ie 6/10)
b) liable period 2004 - 2005 but can deduct letting relief for that period
c) final 3 years 2005 - 2008 exempt under the "final 3 years rule" (ie 3/10)

Post up the original (discounted) purchase price and you sales price and one of us will do the actual calculation. Note the calculation must be done in months not years so tell us the month of purchase and the month you moved out

unless your gain is absolutely massive then it very unlikely you will actually have any CGT to pay becuase 9/10 of the gain is exempt and the remaining 1/10 will be reduce by letting relief, personal allowance and your costs - but that does not excuse you from not declaring it hence the investigation

I guess the reason HMRC want to see foods bills is it helps them see where you were actually living. You get CGT exemption because it was your main house, ie the one you lived in as a family and HMRC want proof of that occupancy, showing them where you shopped for food helps them see where you may actually have lived in practice

RENT
as you are being investigated i hope you have declared the rent you received correctly. If it was a repayment mortgage and you deducted the full amount from your rental income then you have made a mistake and will be caught for income tax evasion

sue_sue_2

Hi, thanks for this info but it was all not needed, letter today charge of £20 pound something, will happily pay that

MrBeans

sue_sue wrote: »

Hi, thanks for this info but it was all not needed, letter today charge of £20 pound something, will happily pay that

Wierd! £20 for Capital Gains Tax???

Kynthia

Capital gains tax is a tax you pay on the profit of any asset you dispose of. Houses, shares, gold, antiques, art, etc are all possible assets and and disposal can include gifting, swapping and claiming on insurance for it, not just selling. Some assets are exempt, such as your car, anything under £6k and your principle residence while you live there (and the last three years of ownership). There are possible deductions to reduce the amount owed such as the buying/selling costs, letting relief, etc. Also you have an annual allowance of £10,600 before you have to pay any tax.

A seperate issue is the tax we pay on all income we make each year, such as the tax you pay on your salary and on your savings interest. When you let out a property you are liable for property tax and even if you aren't making a profit you need to declare all of the income to the HMRC. There are fines for not doing so and the HMRC can find you years later. Again there are certain allowable expenses you can use to offset the income and calculate the taxable profit. You usually fill in a self assessment form to declare and calculate this.

John_Pierpoint

Kynthia wrote: »

Capital gains tax is a tax you pay on the profit of any asset you dispose of. Houses, shares, gold, antiques, art, etc are all possible assets and and disposal can include gifting, swapping and claiming on insurance for it, not just selling. Some assets are exempt, such as your car, anything under £6k and your principle residence while you live there (and the last three years of ownership). There are possible deductions to reduce the amount owed such as the buying/selling costs, letting relief, etc. Also you have an annual allowance of £10,600 before you have to pay any tax.

Tell me more please.

grey_gym_sock

chattels disposed of for under £6k are exempt, not anything under £6k.

SuperHan

And it's acquired for and disposed for under £6k. Other rules come in to play if you buy above 6k and sell below, but they're usually losses and not necessarily relevant here!

John_Pierpoint

Did not think it applied to those "free" former building society shares I was forced to sell in the Global Financial Crisis of 2008/2009. Which just happened to coincide with a year when I made a "profit" on an interest in a second home.:mad:

goalhanger

Interesting thread as I am thinking of selling a 2nd home. We have owned the property for about 12 years and have been collecting a peppercorn rent from my parents.
If I now sell the house which was worth about £150000 in 2000 and now worth about £330000 will I be able to offset my CGT allowance for the whole 12 years ?
Seems like everywhere you turn the Tax man takes his cut. Just had to repay ALL the tax credits we ever received in one go !:(

Thanks.