CGT on house sale

mxh

Just trying to work out how much, if any CGT I will be liable for if I sell my house. Details are as follows :-

Purchased for £56k in Jan 1994 - lived in as main residence until Jan 2010
Extended in 2006 - work £60k
Rented out in Jan Feb 2010 until (let's assume) Jan 2015
Sale value £300k

I believe there's a change in the law coming where you only get the last 18 months free from tax (currently 3 years)

I'm not sure how the extension work comes into play - but I think the calculation should be something like :-

£300k - (£56K+£60k) = £184k profit
Total owned time = 21 years
Rented time = 5 years
Tax liable = £184k * ((21yrs (owned) - 16yrs (lived in) - 1.5yrs) / 21 yrs) = £31k

Is this correct?

Apparently there's also 'lettings' relief - I'm not really sure how this works, but would I be allowed this for the 5 years the property was rented? If so, how would this affect the figures

Cheers for any help

00ec25

thank you for having got as far as you have with your researches, many don't.

- The calculation must be done in months not years
- the extension cost is correctly treated as a deduction from the gross gain leaving 184 as the liable gain

as for the rest of the calculation have a look at this example (#5 and #6) and put your numbers through the same calculations
https://forums.moneysavingexpert.com/discussion/4904592
you will find there is net result zero ... do please post up your calculation if you want it checked .

mxh

Thanks for your response.

I changed the dates slightly so they worked in nice rounded years just to get ball park figures (and test that my understanding is correct) - but appreciate I'll need to do it by months to get an accurate figure.

I'm a bit confused by the calculation in the link you posted. Your calculations for PRR seem to tally with my calculation (ie 184k minus 31k = 153k). But you then say the maximum allowed is 40k?

Or would it be :-

184 (gain) - PRR:153k - Letting Relief : 40k = less that 0 ie no tax to pay?

I think I've got PRR right, but I think I'm not understanding Letting relief.

And just one thing to ask - this is my ONLY property - I moved to another area for work and now rent. So just to confirm, I'll still be liable for CGT (or at least, have to go through the process of CGT) if I sell - it's not exempt because it's my only property - is that correct?

00ec25

very simple, letting relief is capped at the LOWER OF
a) private residence relief figure
or
b) the amount of gain during the let period
or
c) fixed sum of £40,000

whichever is the lowest, so your calculation should read
184 - PRR 153.5 - Lowest of (PRR 184x17.5/21 or let period amount 184x3.5/21, or max cap 40k) so LR is 31.5k = 0 net gain. In reality therefore you have not actually needed to use any of your personal allowance in this case so could have a further 11,900 of gain before you would have a +ve amount subject to tax


and yes you are liable because you fail condition 2 of the PPR rules since you cannot use it as your home whilst it's let irrespective of whether its the only place you own
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm
a) it's been your only home or main residence YES
b) you have used it as your home and nothing else NO

If you want you could claim for private residence relief under the working away absence rule but note that all 3 conditions must be met for you to be able to do that:

Working away from home
You'll still get the full relief if you couldn't live in your home because you were employed and the distance from work or the requirements of your job stopped you living at home - and you were absent for less than four years
The following must also apply:
a) the house was your only or main home both before and after you worked away
b) you were not entitled to Private Residence Relief on any other property during that time (see 'Owning more than one home' below if you're unsure

so for you to meet the working away absence rules you must return to your own house and live in it as you would have done in the past so that it really is your main home not just a paper exercise. therefore if your job is miles away and you remain in that job your commute would clearly be unrealistic and you would not be really living in the property as your main home so would fail the return to test

mxh

OK, I think I'm getting it now!

I'm trying to work out when I should sell the house so as to not have to pay too much (or any! CGT)

I've run the figures through into the future and it looks like I'll break through into a small CGT liability in late 2016 (assuming the valuation is the same).

But am I right in saying I get a certain amount of CGT relief each year anyway (11k?) - so assuming no other CGT liabilities, I could add an extra 11k to my calculations in working out the 'CGT liable' sell date?

00ec25

mxh wrote: »

But am I right in saying I get a certain amount of CGT relief each year anyway (11k?) - so assuming no other CGT liabilities, I could add an extra 11k to my calculations in working out the 'CGT liable' sell date?

text deleted, I misread, see next post

mxh

Sorry, I didn't word that very well.

What I meant was, you get £11k each year tax allowance so when I sell I can use that year's tax allowance - ie if I want to keep the house as long as possible to maximize capital growth, I can wait until the it will cost me £11k in tax, which will then be offset by my allowance for that year (assuming no other CGT). If I keep it any longer then I'll have some CGT to pay.

Does that sound logical and make sense?

00ec25

mxh wrote: »

Sorry, I didn't word that very well.

What I meant was, you get £11k each year tax allowance so when I sell I can use that year's tax allowance - ie if I want to keep the house as long as possible to maximize capital growth, I can wait until the it will cost me £11k in tax, which will then be offset by my allowance for that year (assuming no other CGT). If I keep it any longer then I'll have some CGT to pay.

Does that sound logical and make sense?

sorry, I misread your previous post as people do often misunderstand the "annual" figure

you are of course quite correct. Yes you can make an extra 11,000 of gain in addition to the amounts of PRR and LR which you can claim since the PA is always the last figure deducted hence use it or lose it. Just make sure you do not have any other CGT liable gains to declare in that tax year if you want to keep the full amount of PA for the property sale

one further point just in case, you cannot claim a CGT loss if the only reason you have a -ve figure is because of the application of relief/PA. the relief/PA can only reduce the taxable gain down to zero, it cannot be used to make the figure -ve.

mxh

Excellent - thanks very much for clarifying things for me.

Just one more question - would I need to prove that the extension cost £60k for the taxman to include it in the calculations? I did most of the work myself and have some receipts for the bigger stuff. I also kept an Excel spreadsheet which tallies up pretty much everything spent, but I don't have receipts for it all.

Would the spreadsheet (which should stand up to scrutiny, because it's truthful!) and a copy of the plans / building regs (to show that the work was done after I bought the house and not before) be enough?

00ec25

mxh wrote: »

Just one more question - would I need to prove that the extension cost £60k for the taxman to include it in the calculations?

if HMRC queries then yes

, but I don't have receipts for it all.

not good

Would the spreadsheet (which should stand up to scrutiny, because it's truthful!) and a copy of the plans / building regs (to show that the work was done after I bought the house and not before) be enough?

HMRC requires its taxpayers to keep records to support whatever they claim. The spreadsheet alone is barely enough as without supporting receipts its is simply numbers on a sheet which have no evidential basis

that said the lack of receipts only comes into play if HMRC demand that you produce your evidence to support your claim. They have limited resources and do not challenge every claim they receive, so how lucky do you feel??????

mxh

[QUOTE=00ec25;64930337,_so_how_lucky_do_you_feel??????[/QUOTE]

Actually, quite lucky!

I'm sure that if they accept that the extension was actually built (which should be pretty easy to prove, 'cos it's physically there!), they should also accept that materials were required to build it. There are receipts for most of the bigger items, just not the £100 for paint, £50 for light fittings etc etc - however, the 'evidence' backing up the spreadsheet would be that these smaller items also physically exist, and could be proven to be actually required to build the extension (eg "of course I bought damp course - it would never have been signed off if I didn't install some")

So maybe I'm giving them more credit than they deserve, but I'd like to think common sense would prevail.

Thanks for all of your advice - very helpful to me, and hopefully to others reading this thread.