Capital gains tax & private residence relief

holly_hobby

I would strongly suggest you engage a practicing tax practitioner/Accountant (any fee is tax a permitted deduction) or HMRC directly, to confirm HMRC will accept absence in caring for Mum as akin to employment based permissions, before you omit the said yrs from any return, otherwise based solely on forum advice.

Just a word of caution to ensure HMRC won't get the hump !.

Hope this helps

Holly

jimmo

kcat80 wrote: »

Thank you very much for this prompt reply - I really appreciate your help. To clarify the more exact details that I think are relevant:

June 98 – bought the house

June 98 – Sept 2007 – lived in the house as my main residence

Sept 07 – June 2013 – lived at my mother’s house & rented out the house (from Nov 07 – June 13)

I may sell the house in Sept 13 & would then have lived there for 3 months

I have estimated that the gain could be £650,000

As far as my mother’s house is concerned the earlier details I gave weren’t quite correct. It was actually gifted to my brother in Nov 1997 and “title absolute” passed to him at this point. A covenant was also put in place at that time which entitled me to a 3rd of the property if it was sold. My brother will now occupy the house but I am still entitled to request the sale of it.

If I claim the last 3 years as exempt (ie Sept 10 – Sept 13), then from your reply I think I can claim relief for the period from Nov 07 – Sept 10 as “absence for any reason” – is this correct? If so, then I understand that I would be fully exempt and would not have to notify HMRC in the CGT section of my self-assessment form (as I would not be claiming lettings relief).

Many thanks again

Apart from the period of absence being Sept 07 to Sept 10 that’s correct and it all falls neatly into place to produce no capital gains liability.

However I am afraid your plan to sell in Sept 13 is a potential stumbling block.

Its too soon after moving back in for comfort. Before I retired from HMRC in 2006 common advice in the accountancy press was that you should move in for a minimum of 6 months to have a reasonable chance of keeping the taxman off your back.

Actually the true test is the quality of occupation not the length but, fairly obviously, the length of occupation is a factor which fits in easily with a computer based risk assessment process and it would probably be wiser if you stayed there longer. In any event it would be very unwise to put the house on the market before you move back in because that would be taken by HMRC as a strong indicator that the sole purpose of moving back in is to obtain tax relief.

Just as an example, lets say you will move back in in June 13 and sell in June 14.

Then you will have:-

Period of ownership June 98 to June 14, 192 months.

Exempt periods are (the final 3 years of ownership) June 11 to June 14, 36 months.

Periods of occupation (apart from the final 3 years) June 98 to Sept 07, 111 months.

Periods of absence (the remainder of the period of ownership), 45 months.

As already said, you can certainly cover 36 of those months under the “absence for any reason” and you should ensure that the period of absence covers the period from your moving out to when you first let. Lets say Sept 07 to Sept 10.That leaves 9 months, Sept 10 to June 11 to worry about.

As you anticipate realising a capital gain of £650,000 that equates to £3386 per month of ownership so the 9 months represents £30,474.

Next we look at lettings relief.

In your case this is the lesser of :

The gain attributable to the period of letting insofar as it has not already been relieved, in your case 9 months’ worth of lettings, £30,474 or

The maximum, £40,000.

Therefore that covers the £30,474 we were worried about and you would still face no capital gains tax liability.

To summarise all that if you sell in Sept 13 you can certainly calculate and declare a nil liability but the chances of HMRC coming sniffing are very high and the key point will be the quality of your occupation in the final months of ownership.

If you sell in June 14 you will still be able to calculate and declare a nil liability. The chances of HMRC coming sniffing, given a gross gain of £650,000 will still be pretty high but the focus is more likely to be about the sums rather than the quality of the final period of occupation.

Then you have to ask yourself whether you can cope with an Enquiry from HMRC or will you need professional help but what professional help is available.

In my own experience the vast majority of Inspectors of Taxes and accountants pass exams in Capital Gains Tax when they do their formal training, don’t touch the subject again for years and years and make mistakes when they suddenly come back to the subject as a one off many years later and that, I think is your problem.

How do you get quality advice and can you seek recompense if that advice lets you down ?

I presume you are already completing annual Self Assessment Returns because you are receiving rental income. If so you have no choice. You have to declare your capital gain and claim the appropriate relief.

holly_hobby

jimmo wrote: »

Then you have to ask yourself whether you can cope with an Enquiry from HMRC or will you need professional help but what professional help is available ........

How do you get quality advice and can you seek recompense if that advice lets you down ?

The problem is that forum comment (which may be acted upon as qualified advice), can neither be quantified or provide indemnity protection from the poster, which is why the employment of a known practioner, esp in cgt/tax liability enqs, is always recommended ........ to which I would always encourage on the board and never disuade this pursuance.

Hope this helps

Holly

nomunnofun

holly_hobby wrote: »

I would strongly suggest you engage a practicing tax practitioner/Accountant (any fee is tax a permitted deduction) or HMRC directly, to confirm HMRC will accept absence in caring for Mum as akin to employment based permissions, before you omit the said yrs from any return, otherwise based solely on forum advice.

Just a word of caution to ensure HMRC won't get the hump !.

Hope this helps

Holly

I would be grateful if you would confirm that you are sure about the allowability of accountancy fees in this case as I was always under the impression that, in an instance such as this, they were not. I am however, some time out of this loop - like many things in tax this may have changed.

http://www.hmrc.gov.uk/manuals/pimmanual/pim2205.htm

holly_hobby

nomunnofun wrote: »

I would be grateful if you would confirm that you are sure about the allowability of accountancy fees in this case as I was always under the impression that, in an instance such as this, they were not. I am however, some time out of this loop - like many things in tax this may have changed.

http://www.hmrc.gov.uk/manuals/pimmanual/pim2205.htm

Above manual also states ....

Capital expenses may be allowable in computing any capital gain or loss on the disposal of the property. See the CG manual.

To which refer ...

http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm#4 (specifically step 3, as noted below)

Step 3: Work out how much you spent to buy, sell or improve your property

If you've spent extra money to buy, sell or improve your property, you can deduct certain costs.




Costs you can deduct include:

• fees or commission for professional advice or services, for example, Capital Gains Tax valuations, solicitors' and estate agent or advertising fees
• improvement costs to increase the value of the property - but not normal maintenance costs such as repairs or decorating
• Stamp Duty Land Tax and VAT (unless you can reclaim the VAT

Hope this helps
Holly

jimmo

http://www.hmrc.gov.uk/manuals/cgmanual/cg15160.htm
http://www.hmrc.gov.uk/manuals/cgmanual/CG15282.htm

holly_hobby

s. 38 TCGA

http://www.legislation.gov.uk/ukpga/1992/12/section/38/enacted

Could be further used as a supporting argument re offsetting under disposal costs incurred under trade as landlord/schedule A return - with a point to note the claimed fee I am discussing, is not for the completion of a personal tax return (which of course is not a permitted deduction), but professional guidance as to disposal cost allowances and permitted reliefs. My referall to a practioneer in the first point, was in relation to whether OP would qualify for complete CGT exclusion relief, with ref to the time spent caring for Mum, being accepted by HMRC, as qualified equivilient to a permitted absence through employment. Of which due to the ramifications of this not being the case, its important that forum opinion (inc my own !) isn't wholly relied upon, but always verified before acted upon by the OP (or others reading in a similar situ).

To avoid any issues and notwithstanding the debate re deductable prof fee, a simple call to HMRC by the OP will both verify whether she is permitted to exclude (under absence through employment), the time spent away caring for Mum, whilst avoiding the incurrance of any practioner advice fee, and whether its deductable or not (given the anomolies within HMRC publications discussed).

As prev stated, forum comment is great for general guidance (and of course I am always happy to be corrected), but as it comes without indemnity protection and for accuracy, I always recommend, esp important in respect of tax, that an OP personally seeks HMRC or one to one practioner advice/verification to top and tail.

Anyhoo, hopefully OP will come back with an update as and when all's been finalised.

Hope this helps

Holly x

nomunnofun

Excellent jimmo and holly hobby - some subtle differences you have both highlighted.