Calculating capital gains tax

booksurr

swindiff wrote: »

Thanks again. Would I therefore do the calculation for half the profit at current market value?

you would - however please take note of the comments I added after you read the last post - her purchase cost is zero, her liable gain would be "huge"!

swindiff

Gotcha, thanks. Bad move, will wait til married ��

swindiff

Thanks for all your help booksurr

The timeline may have got a bit confused because the property was vacant for 1 month to allow me to decorate it. We purchased on 31st October and let it out on 1st December. I have added this month in as "vacant period". This means that there is always going to be a taxable gain as there is no relief on that month, however, it is so small that it would be swallowed up by the annual CGT allowance of around £11k per person



The property would need to sell for over £300k before we exceeded the annual CGT allowance for a couple (very unlikely), assuming we stayed there for 3 years.



Even if we sold it next year at current market value and never lived there, the Net Taxable Gain would not exceed a single persons allowance.

booksurr

swindiff wrote: »

Even if we sold it next year at current market value and never lived there, the Net Taxable Gain would not exceed a single persons allowance.

scenario 1 - correct (small quibble, LR is the lower of 3 values not 2, ie: PRR (r/o)p, gain in let period (l/o)p, or the 40k cap. Your excel IF statement needs a further nested if statement)
scenario 2 - correct
scenario 3 - sale next year - No. You will recall at #22 above I said occupation is a requirement in order to get PRR and that without PRR you have no claim to LR

therefore sale next year presents you with the 50,350 gross gain and only the PA as relief, so your net taxable gain would be 39,250 if sole ownership (or 28,150 if dual ownership but only after marriage please!)

with a salary of 40k and sole ownership you'd be looking at paying approx 10,990 tax in the worst case leaving you with £209,010 from the sales proceeds with which to pay fees etc and then bank the rest

swindiff

Ah ok, Sorry I missed that bit, I read it but it didn't register we are not intending to do that anyway, I was just playing with the figures. Just out of interest is there a minimum residency period?

booksurr

swindiff wrote: »

Ah ok, Sorry I missed that bit, I read it but it didn't register we are not intending to do that anyway, I was just playing with the figures. Just out of interest is there a minimum residency period?

LOL. I just knew you'd ask that Q!

Second only to how to calculate CGT is can I live there and avoid it. As you now understand the answer is not that simple.

"Occupation" is a mater of quality not quantity, thanks to case law now summarised as: "degree of permanence, some degree of continuity or some expectation of continuity".
http://www.hmrc.gov.uk/manuals/cgmanual/cg64460.htm
It has to REALLY be your HOME but that could be the case for 1 day or 100 years. The test is therefore a rather subjective and intrusive list of assessments of your personal life, eg:
- where is your social life
- where does the wife live
- where do the kids go to school
- where do you commute to/from
- where do friends expect to find you if they call
- where is your post delivered
- what address do you give to official bodies (and mates)
- where are you registered to vote (because of course we all obey the law that says we must register!)
and
- how long have you lived there

There are many other Qs that can be used to elicit "continuity"

swindiff

Great thanks booksurr, you have been extremely helpful

swindiff

booksurr wrote: »

scenario 1 - correct (small quibble, LR is the lower of 3 values not 2, ie: PRR (r/o)p, gain in let period (l/o)p, or the 40k cap. Your excel IF statement needs a further nested if statement)

Ah that changes things a bit, I thought it was too easy to end up with very little tax liability. Still well within what we want to do though, even with only 2 years residency

booksurr

swindiff wrote: »

Ah that changes things a bit, I thought it was too easy to end up with very little tax liability. Still well within what we want to do though, even with only 2 years residency

perfect :dance: :wave:

swindiff

Got there in the end lol