Capital Gains Tax on property

timcrouch

I purchased a flat in August 2002 and lived in it for three years.

I have let it out ever since.

I am now looking to sell it.

I would be very grateful for any advice on my Capital Gains Tax liability and any reliefs etc. I might be able to use to reduce any liability.

I really am grateful for any help.

holly_hobby

You are liable to CGT (net of exemptions and allowances) on the gain realised on disposal.

In your case (if you don't fall within any absence exemptions) you have the following exemptions, and reliefs that you may apply ...

Primary Residence Relief (PRR), which is applied in whole months, and represents the time you were resident PLUS the last 36 mths of ownership (regardless of residency) IF you sell pre 6.4.14 or if you sell POST this date this is reduced to the last 18 mths of ownership)
PLUS
Lettings relief (is the lesser of 40k, the amount of PRR relief or the gain on the let property and is per beneficial owner)
PLUS
Improvement costs (but not general maintenance, which comes under your income tax returns)
PLUS
Acquisition, disposal and associated professional fees (but not those associated with any CGT submission)
PLUS
Your annual unused CGT allowance, which is £10,900 2013/14 rising to £11K for 2014/15.
FINALLY
Any residual amount still outstanding after the application of all of the above reliefs etc, will be taxed at 18% if your are a basic rate tax payer and 28% if you are a higher rate taxpayer and reported via annual self assessment return.

As always, before acting on forum general comment, always verify it is consistent with your own personal circs and tax situ.

Hope this helps

Holly x

00ec25

if you want a full answer provide the following info:
- month and year of purchase
- original purchase cost
- expected month and year of sale
- anticipated sales value
- month and year you moved out (which is not necessarily the date your first tenant moved in as it could be earlier if you had to do preliminary works to the property)
- cost and description of any works done since you moved out, incl any preliminary works

the CGT calculation must be done in months , in principle you are exempt for the period you lived there plus 18 or 36 months, in addition you will get letting relief plus your personal allowance

without some data any further comment is just the same as you reading this
http://www.hmrc.gov.uk/cgt/
and
http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=zXscmgTSjJk&formid=3626

00ec25

holly_hobby wrote: »

Any residual amount still outstanding after the application of all of the above reliefs etc, will be taxed at 18% if your are a basic rate tax payer and 28% if you are a higher rate taxpayer and reported via annual self assessment return.

Holly you keep saying this but the reality is the 18% rate applies on the gain up to the higher rate threshold and any gain over that is at 28% therefore it is not as simple as saying a basic rate taxpayer pays all CGT at 18%, they could easily have some at 18% and the rest at 28%, espeically on proeprty where the gains could be large
see working out your tax ...
http://www.hmrc.gov.uk/rates/cgt.htm

holly_hobby

Sorry, thought that was pretty obvious TBH ... but maybe not ... by the way fully au fait with tax workings, but thanks for the kind link.

00ec25

holly_hobby wrote: »

Sorry, thought that was pretty obvious TBH ... but maybe not ... by the way fully au fait with tax workings, but thanks for the kind link.

not obvious the way you word it, if they are a basic rate taxpayer your wording says they pay at 18%

holly_hobby

Well any confusion's been cleared up now hasn't it.

timcrouch

Thank you Hobby Holly and 00ec25 for your very helpful replies.

To answer 00ec25's questions.

Purchased Aug 2002 for 127,000

Lived in it til August 2005 (when moved house, then rented it out)

Anticipated sale date/price May 2014; 165,000

Thank you again!

00ec25

timcrouch wrote: »

Purchased Aug 2002 for 127,000

Lived in it til August 2005 (when moved house, then rented it out)

Anticipated sale date/price May 2014; 165,000

ownership period 8/02 - 5/14 = 142 months
actual occupation period: 37 months
deemed occupancy period: sold after 5/4/18 therefore restricted to final 18 not 36 months of ownership. Note - has not lived in it during "deemed occupancy" period so no overlap between that and actual occupation therefore the full 18 months counts

calculation:
Gross gain: 165,000 -127,000 = 38,000

Private Residence Relief (PRR) exempt amount:
gain x (actual + deemed occupation)/total ownership
38,000 x (37+18)/142 = 14,781

Letting Relief: lower of
a) PRR: 14,781
b) gain during let period: 38,000 x (142-37-18)/142 = 23,281
c) maximum allowed letting relief: 40,000
Lowest = PRR @ 14,781

net taxable gain: Gross gain - PRR - letting relief - personal allowance of 11,000 (at 2014/15 rate)
38,000 - 14,781 - 14,781 -11,000 = ZERO

Your gross gain is fully covered by the available CGT relief so you have no CGT to pay on the property sale.
Although to achieve this you do have to "use up" 8,438 of your personal allowance in order to reduce the taxable gain to zero, therefore, if you have any further CGT liable gains in the tax year 14/15, (eg: profit on disposal of shares) you have only got 2,562 left of your personal allowance to offset against any such additional gains.

Notes:
1. The above assumes that the property is only in your name. If there is a co owner then the gross gain of 38,000 is split as per the respective ownership proportions and a calculation is done for each owner per the above mechanics.

2. Because the total sales proceeds of 165,000 are more than x4 your personal allowance of 11,000 then, despite the fact that no tax is actually payable, you are nonetheless required to declare the sale to HMRC and submit the CGT calculation to "prove" you have no tax to pay. This is so HMRC can check your figures....

3. the actual submitted calculation would also deduct your fees incurred in buying and selling the property (eg legal fees plus estate agent fees) to arrive at your gross gain, therefore it is going to be less than 38,000

4. Technically speaking if you have spent money on capital improvements since it was let out then the costs of those would also be deducted as part of your gross gain calculation, albeit in your case you have no tax to pay anyway so it will not affect the outcome

5. You cannot claim a loss on sale of your property if the loss is created purely from using the CGT reliefs therefore the net taxable gain is zero rather than being a negative number and any unused personal allowance remains available for the rest of that tax year

timcrouch

holly_hobby wrote: »

You are liable to CGT (net of exemptions and allowances) on the gain realised on disposal.

In your case (if you don't fall within any absence exemptions) you have the following exemptions, and reliefs that you may apply ...

Primary Residence Relief (PRR), which is applied in whole months, and represents the time you were resident PLUS the last 36 mths of ownership (regardless of residency) IF you sell pre 6.4.14 or if you sell POST this date this is reduced to the last 18 mths of ownership)
PLUS
Lettings relief (is the lesser of 40k, the amount of PRR relief or the gain on the let property and is per beneficial owner)
PLUS
Improvement costs (but not general maintenance, which comes under your income tax returns)
PLUS
Acquisition, disposal and associated professional fees (but not those associated with any CGT submission)
PLUS
Your annual unused CGT allowance, which is £10,900 2013/14 rising to £11K for 2014/15.
FINALLY
Any residual amount still outstanding after the application of all of the above reliefs etc, will be taxed at 18% if your are a basic rate tax payer and 28% if you are a higher rate taxpayer and reported via annual self assessment return.

As always, before acting on forum general comment, always verify it is consistent with your own personal circs and tax situ.

Hope this helps

Holly x

Hi Holly,

Just to let you know you provided me with this answer a while ago and having sold my flat in 2014 I just used your answer to help me with my 14-15 tax return. Really helpful - thanks very much!