Capital Gains Tax query

tiamaria

Hi
In June 2005 My ex bought a council flat he had been living in since 1995, it took a long time to go through as there were a few hiccups, but he then moved in with me in August of the same year and rented it out.

We split up in Feb 2013 and he moved back into the flat. He's now selling it as he wants a place with a garden and he has a buyer but he's worried that he may have to pay CTG?

Does anyone know?
Thanks

uknick

If it is his main residence now, the answer is no CGT to pay.


Look at this link


http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

pjcox2005

uknick - It's not quite as straightforwad as whether it his main residence at the point of sale, you need to look at the full history. As per your link:

" For the whole time you've owned it both the following must apply:

• it's been your only home or main residence
• you have used it as your home and nothing else"

In order to give an opinion, you need to work through, what price did he buy it for, what periods (broken down by months) has he lived in the house, what's the anitcipated sale price and sale date (as the rules are about to change slightly - I think from April if I recall).

00ec25

without further details it is impossible to say there is no CGT to pay, however, on the scant info provided there is possibly little CGT to pay but the fact he lived there for so little time is a complication

if you want a full answer then please provide:
- original purchase price, that is the amount he paid after the RTB discount, not its market value at the time
- the month in 2005 when the purchase completed
- the month in 2005 when he moved out
- anticipated sales value

he has owned the flat since June 2005, so 9 years by June 2014
but he has only occupied it as his main home for a few months in 2005 and since Feb 13 so 16 months by June 14, therefore out of a period of 9 years

a) it is exempt for the last 18 months of ownership (I assume he will not complete the sale before 5/4/14) and a few months in 2005
b) he is entitled to letting relief but this will almost certainly be capped at the value of the exempt period
c) he is entitled to his £11,000 personal allowance

whether his relief covers his full liability depends on the figures so it is not possible to say if any CGT is, or is not, payable

tiamaria

Hi Thanks for your replies, I did read the revenue link previously but it seemed to contradict itself as already pointed out hence my post here as I was unsure.
To answer your questions -
- original purchase price, that is the amount he paid after the RTB discount, not its market value at the timeThe price paid was £20,500
- the month in 2005 when the purchase completed June
- the month in 2005 when he moved out August
- anticipated sales valueThe sale price now has been agreed at £87,000

00ec25

lets say his sale completes in June 2014 for the sake of a date
total ownership period 109 months
gross gain 87,000 - 20,500 = 66,500

CGT exempt period: period lived in June 05 - July 05 = 2 months plus the "deemed occupancy period" covering the final 18 months of ownership so total exempt period 20 months. Note the actual occupation from Feb 13 covers the deemed period so cannot be counted twice

Private Residence Relief (PRR) amount: 66,500 x 20/109 = 12,201

letting relief: lower of
a) PRR 12,201
b) gain in let period: 66,500 x (109-20)/109 = 54,298
c) maximum allowed: 40,000
lowest = PRR @ 12,201

CGT liability : 66,500 - PRR:12,201 - Letting relief:12,201 - personal allowance 11,000 = 31,098.
In addition, there will be a few incidental costs he can deduct from this such as the legal fee and Estate agent fees associated with its purchase and sale -
he is liable for CGT on a gain of 31,098 and will pay this at 18% and almost certainly some of it at 28% . The cutoff for the 18% rate being however much is left of his basic rate income tax allowance,

if we take the worst case scenario and assume he is already a higher rate income tax payer (let us say his buying/selling costs are 2,500) that gives all at 28% and a possible net taxable gain of 28,598 x 28% = £8,007 CGT to pay.

PS I note you say sale price agreed ?
If the sale will actually complete on/before 5 April 2014 then he would fall under the old rules for the deemed occupancy period and you can replace 18 months with 36 so he would have an exempt period of 38 months rather than 20, I'll leave you to rework the rest of the maths ...

uknick

pjcox2005 wrote: »

uknick - It's not quite as straightforwad as whether it his main residence at the point of sale, you need to look at the full history. As per your link:

" For the whole time you've owned it both the following must apply:

• it's been your only home or main residence
• you have used it as your home and nothing else"

In order to give an opinion, you need to work through, what price did he buy it for, what periods (broken down by months) has he lived in the house, what's the anitcipated sale price and sale date (as the rules are about to change slightly - I think from April if I recall).

My mistake. I just saw he will be living in it when he sells it. I should have assimilated the rest of the post better.

tiamaria

Thank you so much for taking the trouble to work that out, he isnt a higher rate tax payer so he'll be pleased to know it's less than 8k as the solicitor wasn't quite sure & told him to contact the tax office but he came up with the figure of 20k!

tiamaria

CGT exempt period: period lived in June 05 - July 05 = 2 months plus the "deemed occupancy period" covering the final 18 months of ownership so total exempt period 20 months. Note the actual occupation from Feb 13 covers the deemed period so cannot be counted twice

would he be better off hanging on till he's lived there 18months? he's been there 12 atm, I've probably misunderstood this:o

jimmo

A couple of points to add to the above.
Occupying the property for only 2 months following purchase in 2005 is very likely attract interest from HMRC. It would therefore be wise to include something in the computation or the any other information part of the Return to the effect that he had occupied the property since 1995 and it was purchased under RTB.
As the sale price has been agreed the sale seems likely to follow shortly and it is the date of exchange of contracts, not the date of completion, that determines the date of sale. So, as long as he can exchange contracts before 5 April he will qualify for the last 36 months of ownership, as opposed to the last 18 months and the effect of the additional relief will be more of less doubled by a corresponding increase in letting relief.

jimmo

tiamaria wrote: »

would he be better off hanging on till he's lived there 18months? he's been there 12 atm, I've probably misunderstood this:o

Not really. He would be better off if he can exchange contracts by 5 April but, failing that the final 18 months of ownership qualifies for relief regardless of whether he lives there or not.
As he has lived there for 12 months now, the next 6 months are not going to make any difference. After that each additional month of occupation will make a small difference but it’s a moving target in the sense that whilst the period of occupation will grow , so will the period of ownership. So the fractions will change each month.