Do I pay capital gains on property as soon as its sold?

MajorTom_2

Hi guys,


I'm selling a property which is due to exchange contracts on 14th Jan 2014 and then complete a month later.


I have worked out I'm going to end up owing Mr Tax Man around £900 in capital gains, my question is do I pay this the day after I sell the house or can I leave it and fill in a self assessment form by Jan 10th 2015 and then pay back through the normal tax system through 2015-2016?


I am employed PAYE in a full time job, the property I am selling was inherited (now in my name) and being sold after extensive renovations.


Also when filling out the capital gains forms, do I simply state how much has been spent etc or am I required to enclose all the receipts at the same time?


Cheers,


MT

nomunnofun

The capital gain should be declared on the 2013/14 tax return. You have until 31st January 2015 to complete this if doing so online and this is also the due date for payment. However, if you wish this to be collected by paying more tax at your employment (an interest free instalment option) you must submit by 30th December 2014 (it is 30th December 2013 for 2012/13 tax returns and I have assumed similar for next year)

However read this with respect to noification to HMRC:

http://www.hmrc.gov.uk/cgt/intro/report-gain.htm#1

Receipts would only be required in the event of a HMRC enquiry. Retain.

MajorTom_2

Ok so from that I don't have to pay any tax straight away, and I fill in a self assessment by 30st Dec 2014 and I can then pay back via PAYE (£90 a month is better than £900 lump!) over the next 12 months?


I will keep all my receipts safe in case they launch an investigation.

uknick

OP, without going into too much detail, how did you arrive at the £900 liability?

I ask because;

a) there are some quite specific rules on what can and can't be counted for refurbishment costs with regard to CGT. For instance, costs deemed to be maintenance, e.g. decorating, are not allowed.

b) I assume the place was not your PRR as you are talking about CGT, but was it empty during the refurbishment? If so are you aware of the VAT rules allowing possible claim back of VAT on the work? See this link

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000513&propertyType=document#P853_88325

I only found out about this after our refurbishment was nearly finished but was able to get reduced VAT charges after asking for new invoices from the suppliers.

MajorTom_2

Uknick,


I have included costs for total stripping of all walls, replastering of ceilings etc, new kitchen, new rads, new carpets, new conservatory roof, new fencing amongst other things (electrical work etc).


Basically the property was gutted and started again as it was in need of modernisation. When the property was transferred to me I paid for a surveyors valuation (not estate agent) who put it at £170k, I've spent around £10,500 on the improvements and netted £197.5k on the sale. With the cost of sale and personal CGT allowance I am liable for around £3,400 of which I pay 28% on (I am a higher tax payer).


MT

00ec25

MajorTom wrote: »

When the property was transferred to me I paid for a surveyors valuation (not estate agent) who put it at £170k,

unless inheritance tax was actually paid at the time of transfer to you then your "original cost" of the property has not yet been "ascertained"


this is HMRC technical speak for we have not yet accepted your valuation so we will use our own which may or may not be different to yours.
hmrc offer a free service whereby they will check your valuation before you submit your tax return as a "help" to avoiding any nasty questions from them when they go through your tax return. You can request this via form 34 but it is entirely your choice whether to do so or not
http://www.hmrc.gov.uk/forms/cg34.pdf

nomunnofun

00ec25 wrote: »

unless inheritance tax was actually paid at the time of transfer to you then your "original cost" of the property has not yet been "ascertained"


this is HMRC technical speak for we have not yet accepted your valuation so we will use our own which may or may not be different to yours.
hmrc offer a free service whereby they will check your valuation before you submit your tax return as a "help" to avoiding any nasty questions from them when they go through your tax return. You can request this via form 34 but it is entirely your choice whether to do so or not
http://www.hmrc.gov.uk/forms/cg34.pdf

Great advice - I had completely forgotten about that form - removes a lot of the potential stress. Actually it is a CG34 which I am sure that you knew - here:

http://www.hmrc.gov.uk/forms/cg34.pdf

MajorTom_2

Thanks guys,


I was not aware that existed. No inheritance tax was paid as the estate was well under the threshold. The solicitor dealing with the estate advised me to pay for a proper surveyors valuation to negate any possible valuation issues once the house is sold.


So this is not my personal valuation its by a professional and was entered in to the land registry details when the property was transferred into my name.


Would this affect anything then?


MT

00ec25

MajorTom wrote: »

Thanks guys,


I was not aware that existed. No inheritance tax was paid as the estate was well under the threshold. The solicitor dealing with the estate advised me to pay for a proper surveyors valuation to negate any possible valuation issues once the house is sold.

So this is not my personal valuation its by a professional and was entered in to the land registry details when the property was transferred into my name.

Would this affect anything then?

MT

a professional surveyors valuation will stand you in good stead as the start point, so your solicitor was correct. The value on the LR site is however irrelevant as HMRC have not yet ascertained that it is the correct value for taxation purposes since no tax has been paid to date. HMRC thus reserve the right to use a valuation provided to them formally by the Valuation Office Agency (an arm of HMRC).
http://www.voa.gov.uk/corporate/SVT/SVTwhatWeDo.html

In practice this may be the same figure as your surveyor, so the problem would be academic, since both he and the VOA probably consult the same generic sources for valuations. But the tax value may end up being distinct from any "value" for LR purposes since it is not the function of the LR to agree tax values.

So if/where there is a difference between you and HMRC, you need to exploit that your surveyor has (I assume) physically seen the property, whereas the VOA most likely has (at that stage) only done a desktop exercise. Therefore the potential exists for difference of opinion over value and hence the need to argue your case. At the end of the day you can win if your evidence is compelling (eg. is given by a professional surveyor), but obviously HMRC will be predisposed towards figures from its "own" valuation service, hence you may have to fight your corner.


Form CG 34 is, in reality, sent by HMRC to the VOA so the value given in response to that form will be the value that the VOA (and therefore HMRC) decides. I could not say what your chances would be of disputing the VOA value if it is significantly different to that from your own surveyor. Any dispute would almost certainly need further input from your surveyor so should be weighed against the likely additional costs incurred in such a dispute