capital gains tax

Merrie

My parents bought their house in 1975. in 2008 my widowed mother moved out to a warden controlled flat and let the house to a family friend. We now need to sell the house due to increasing care needs so we can buy a larger house together with a granny annexe or similar.
I have looked on the government website and am confused by the rules for private residence relief. can anyone help?
Thanks

foxy-stoat

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2016

Read that, maybe speak to an accountant or solicitor handling the sale.

At worst she may be liable for the gain from 2008 to 2013 if any, less any deductables.

silvercar

foxy-stoat wrote: »

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2016

Read that, maybe speak to an accountant or solicitor handling the sale.

At worst she may be liable for the gain from 2008 to 2013 if any, less any deductables.

[STRIKE]Why 2013? Only the last 18 months would be not counted.[/STRIKE]

You are period of ownership starts 31/3/82, so you need its value then.

Then she would be exempt from 31/3/82 til she moved out and the last 18 months. So you have about 27.5 years exempt (26 + last 1.5) out of 34. The calculations are done in months, but you get the idea.

So roughly 81% of the gain is exempt. Then she would also have letting relief (google it) which could provide upto £40k relief plus her CGT allowance if not used elsewhere.

EDIT: I've just seen that the disabled get the last 36 months exempt. So you are now looking at 28/34 yrs ie ~82%.

foxy-stoat

But the property was the home until 2008 - so this should be the start date, should it not? Finding out the value in 2008 shouldnt be too difficult.

She really needs some paid advice from an accountant.

Look at example 9 and :

Letting Relief

If you only get partial relief because you have let some or all of your dwelling house as residential accommodation, you may be entitled to a further relief. This further relief is due where:

• you sell a dwelling house which is, or has been, your only or main residence, and
• part or all of it has at some time in your period of ownership been let as residential accommodation

The amount of relief is the lowest of:

• the amount of Private Residence Relief already calculated
• 40,000
• the amount of any chargeable gain you make because of the letting

booksurr

silvercar wrote: »

EDIT: I've just seen that the disabled get the last 36 months exempt. So you are now looking at 28/34 yrs ie ~82%.

you are right to flag that up, but given all we know is that mother is in a warden controlled flat it does not suggest she is eligible for that exception. A warden is neither a nurse nor a care provider, and a flat implies it is not a care home. Furthermore, merely being old is not a disability !

the full criteria are per the Taxation Capital Gains Act 1995 s225E (Disposals by disabled persons or persons in care homes etc)
(my bolding)

a) the individual is a disabled person or a long-term resident in a
care home,

b) An individual is a "long-term resident" in a care home at the time of the disposal if at that time the individual:
- is resident there, and
- has been resident there, or can reasonably be expected to be resident there, for at least three months

c) "care home" means an establishment that provides accommodation together with nursing or personal care;

d) "disabled person" means:
- He is incapable of administering his property or managing his affairs because of mental disorder within the meaning of the Mental Health Act 1983.
OR
- He receives certain welfare benefits (such as the personal independence payment (PIP)) or would be entitled to receive them but for specified reasons (such as being in hospital).

booksurr

foxy-stoat wrote: »

But the property was the home until 2008 - so this should be the start date, should it not? Finding out the value in 2008 shouldnt be too difficult.

She really needs some paid advice from an accountant.

there is no point you answering tax questions if you really do not know the basics. There are several people on this forum who can answer CGT on house sale questions - Silvercar is one

CGT is applied to the gain between date of purchase and date of sale.

some of that time will be exempt if it relates to a period when the property was in use as the main home, the rest of the time it is not exempt, but may be eligible for such things as the letting relief you identify

in very simple terms CGT was "rebased" at 31st March 1982 so anything owned before that date must use the value at Mar 82 as the "cost" price and the gain in the OP's case is from then, not 2008, since the house has been owned from before 1982

have a look at this example to see the mechanics of the calculation
http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6

Merrie

This is really helpful - until today i thought she would be liable for the whole amount. Mum is in receipt of high rate AA, so that might be a consideration.

silvercar

foxy-stoat wrote: »

But the property was the home until 2008 - so this should be the start date, should it not? Finding out the value in 2008 shouldnt be too difficult.

No it should not.

She really needs some paid advice from an accountant.

It seems reasonable to use a forum before deciding whether to take advice from an accountant.

Certainly if relying on advice from random people there is definitely a need to check on it.

Not helped when people posting, just write something they clearly no nothing about!

booksurr

Merrie wrote: »

This is really helpful - until today i thought she would be liable for the whole amount. Mum is in receipt of high rate AA, so that might be a consideration.

given she will need a 31 March 1982 valuation she will need specialist help best obtained from someone who is a chartered surveyor who also holds the registered valuer accreditation (there is a list of such by geographical location under "find a firm" or "find a member" on the institute website http://www.rics.org/uk/ )

having got that you could work out the gain and CGT yourself as the calculation is the 5 steps shown in my link.

Note that once the house is sold and so you have the gain figure send it to HMRC in advance of you doing a tax return so they can review whether they accept the 1982 value. They refer all such instances to their own valuers so getting it agreed in advance is much better than having a tax return rejected - use Form CG34 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/499161/cg34.pdf

Merrie

Thanks - it is beginning to make sense.

So, for example, if the house sells in September for £300000 and market value in march 1982 was £25000
capital gain would be 300000 - 25000 - 4600 (cost of selling) = 270400.
she lived in the house until sept 2008 so that is 26.5 x 12 = 318 + 18 = 336 months.
Total months from march 1982 to sept 2016 = 34.5 x 12 = 414 months.
so private residence relief = 270400/414 x 336 = £219455.

Tennant moving out in sept 2016 so lived there 8 x 12 = 96 months.
minus 18 months already taken into account = 78.
270400/414 x 78 = 50944.

so letting relief would be £40000 (lowest of the 3)

therefore capital gains would be 270400 - 40000 - 219445 = 10955.
This is less than the 11100 allowance so no tax is payable.

Have i got this right?

booksurr

Merrie wrote: »

Have i got this right?

not quite right

Merrie wrote: »

Total months from march 1982 to sept 2016 = 34.5 x 12 = 414 months

you are almost there and have understood it very well. Your error, if it is sold in Sept 16, is that the total ownership must include the last month as well
Mar - Dec 1982 = 10 months
Jan 1983 - Dec 2015 = 33 years x 12 = 396 months
Jan 16 - Sept 16 = 9 months
total 415

sadly that does mean you are left with a tiny amount of taxable gain

PRR 270,400 x 336/415 = 218,926
LR: 40,000 capped

net taxable gain 270,400 - 218,926 - 40,000 - 11,100 (PA) = 374

tax on 374 would be
- @ 18% if basic rate taxpayer = £67
- @28% if higher rate taxpayer = £104

Clearly if selling costs are more than the 4,600 then you will be back to having no tax to pay. I assume you have based your costs on 1.5% EA fee = 4,500 + £100 other costs? I'm sure that will not be the final figure but hardly matters anyway - you will sell for £300,000, pay a few grand in costs and pay at worst £104 in tax leaving you with more than 290,000 in cash

don't let the tax tail wag the dog! Do what you need to, take the tax as it comes.