Can I reduce my capital gains tax?

eleraig

I lived with my parents in a flat rented from a housing association from 1952 to 1971. In 1988 I bought the flat for £6000 and my mother lived there till her death in 96.
I retired 12 years ago to Spain and rented out the flat until recently. I own no other property in the UK. I could sell the flat now for £50,000 and guess I would be liable for about £6000 tax. Could I avoid this by coming back to the UK and living in the flat before selling?
I understand that if I lived in the property before and after being abroad I could be exempt but have no idea of the periods of time that may be involved and whether "before and after" means immediately before and after.
Any advice would be greatly appreciated.

silvercar

If you were in the UK and bought the flat in 1988 and sold it this summer, your gain would be:

bought for 6,000, sell for 50,000 and buying costs (estate agent, legal)....say 2,000.

indexation relief from 1988 to 1998 increases the starting value by about half to 9,000; gain is now 39,000

taper relief knocks another 40% off so 39,000 x 60% = 23,400.

CGT allowance is currently 9,200.

So taxable gain is 23,400-9,200=14,200.

As a non tax payer the CGT rate is 10% ie £1,420, at basic rate it would be 20% ie £2,840 and at higher rate 40% is £5,680.

If you came home and lived in it as your principal private residence you would be exempt for the last 3 years of ownership. So if you then sell in 2008 3/20 years of ownership would be exempt. The 39,000 refered to above would reduce to 33,150 then taper relief reduces that to 19,890. Less 9,200 allowance= 10,690 and your tax reduces to £1,069, £2,138 or £4,276 depending on your tax band.

Questions I don't know the answer to, that someone else may be able to help:

a) does living in a home owned by your parents as a child count for it being your PPR (I doubt it but you never know);
b) does living in Spain effect your CGT liability (probably not on UK assets, but htere may be a tax agreement between countries).
c) I know that there are cases where you can claim a property as your PPR if your job sends you overseas. I don't know if it applies here.
d) letting relief applies where you let a home that was your PPR. This would give you a big saving but I don't know whether the fact you didn't own the home at the time you lived in it means you can't use this - I would suspect you can't.

If of course there is a chance you could claim this was your home before you went overseas the tax situation improves; whether your circumstances would allow you to do this I don't know.

Sorry if raising more questions doesn't give you answers, but hopefully my calculations do give you some help.

Elaine_Wilson

I cant help with the big questions but I thought I would raise a small point.

The indexation relief from 1988 to 1998 was about 56%. Silvercar mentioned that this would reduce the gain by £21,000 but surely this is applied to the cost price and so would only reduce the gain by something over £3,000?

I dont think any of the gain would be exempt as a private residence as my understanding is that you would have had to lived in the property sometime in the period from 1988 to the date of sale.

This could all be academic if jimmo is right about the residence situation.

Pennywise

Also think about dependant relative relief - page 4 of:-

http://www.hmrc.gov.uk/helpsheets/ir283.pdf

For the property to qualify, you must have bought it before 5/4/88, you must not have been paid rent for it, and your mother must have "qualified" by 5/4/88 either that she was a widow/separated by that time, or either of your parent's were incapacitated by age or infirmity from looking after themselves. If your mother qualifies, then potentially all the gain could be exempt due to PPR relief, meaning no tax anyway.

silvercar

Elaine, you are so right, I will correct those figures.

That April 1988 date looks crucial for the exemption for dependent relatives exemption (last page of the HMRC link). Could save you loads.

eleraig

silvercar wrote: »

Elaine, you are so right, I will correct those figures.

That April 1988 date looks crucial for the exemption for dependent relatives exemption (last page of the HMRC link). Could save you loads.

My mother was widowed in 1963 and never remarried.
This is the first time I have used this site. It's absolutely brilliant!

eleraig

I have Spainish "residencia" and am not normally resident in UK. Spanish tax on property sales depends on the length of ownership (at least on property there) and slides down to 0% after 20 years.

Very many thanks for your extensive reply.

eleraig

Pennywise wrote: »

Also think about dependant relative relief - page 4 of:-

http://www.hmrc.gov.uk/helpsheets/ir283.pdf
Thankyou very much for this, Pennywise...it's looking good!

ramborai1987

i need this question answered. if i claim for private residence relief how will the hmrc check if i'm telling the truth? what do they actually check to see if it was your main residence.

could i blag an extra year if ive been getting bills and bank statements there but living somewhere else?

thanks

silvercar

ramborai1987 wrote: »

i need this question answered. if i claim for private residence relief how will the hmrc check if i'm telling the truth? what do they actually check to see if it was your main residence.

could i blag an extra year if ive been getting bills and bank statements there but living somewhere else?

thanks

Better to start a new thread, then your question gets seen be more/ different people.

If you question is whether you can get away with committing tax fraud, its a risk you could take. Only you can judge how well you will sleep at night and how likely you are to get caught.

You may not need to blag an extra year; you get exemption for the time it was your PPR and your last 3 years of ownership.

eleraig

I am afraid can't check on dates at the moment as I am on holiday. On your other points I can confirm that:
I bought the flat and am the registed owner.
I obtained permission from IR to receive rents gross...then they sent me tax bills which I paid for several years.

I then realised that my wife was not using her personal allowance so I now sublet to her at a nominal rent and she receives the rental.
(She also got IR permission to receive the rent gross which at £2000pa is less than her allowance.) When I was assessed for my state OAP I declared this as my wife's income. So far there have been no queries from IR.