Is this CGT calculation correct part 2..

skillboy

Similar to my last one but not exactly the same, I changed it to months to be more accurate, is this correct?

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House owned by parents jointly.

House bought in March 1982 for £25,000
Will gift away in Sep this year for market value = £250,000
Cost of improvements, buying, selling is £0

Net gain is £225,000

They lived in the house for the whole time apart from letting it for a total of 84 months (after deducting the 18 months for PPR calculation).

I calculate their PPR relief at £176,538.46 (306/390 months x 225k)

Private lettings relief at £80,000 (£40,000 each). I used 40k each as this is the lowest figure vs CG while let out which I calculate as 84/390 months x 225K = £48,461.54.

CGT allowance 2014/15 at £0 (used up already in part 1!)

Total deductions are £281,538.46 therefore taxable gain is £0 so no CGT to pay.

Is this correct? Any feedback appreciated. Thanks

booksurr

Your addition is wrong to start with 176 + 40 + 40 = 256 not 281

Anyhow your approach is wrong, sense check - there are only 2 variables: PRR + LR which together can never equal more than the gain since each is simply a % of the total gain and together the two % cannot be more than 100%. If LR is capped at 40, then the total net relief must be less than the gross gain not more than it! You cannot start with 225 and end up with 256 (or 281!).

Your error is because you have not accounted for each person individually, otherwise it makes the LR value misleading. You cannot compare 48 against 40 as the 40k applies per person whereas 48 is for 2 people.

The end result is the same (zero tax) but the correct calculation is....
gain 225, assume 50/50, each person 112.5
PRR 88,269
LR (lowest): 84/390 x 112.5 = 24,231
net gain 112,500 - 88,269 - 24,231 = 0

skillboy

A very clear explanation. Thanks for pointing out my error and showing me the correct calculation. Much appreciated!