Capital Gains Tax - two lodgers

FaberC

I thought I had cracked my CGT situation but I then read the guidance again and realised two lodgers means a slightly trickier situation. I was wondering if anyone could check and clarify for me this statement from this thread which I've been using for some help too as it seems a similar situation https://forums.moneysavingexpert.com/discussion/5029865/capital-gain-tax-because-of-lodgers

"built into PRR is the absolute right to always have the final 18 months (the reduction from 36 is for sales made wef April 2014) as part of the PRR period as deemed occupation irrespective of whether you let it out or leave it empty in that period but you cannot double count this"

Key facts:

• Owned the house for 54 months in total.
• First 24 months lived in house with 2 lodgers. (House consists of kitchen/diner, 3 bedrooms and a bathroom so 50% to lodgers).
• Next 22 months rented out - did not live there.
• Final 8 months lived there alone.
• Total gain £130000

PPR
I lived in the house for a total of 32/54 months. For 8/54 of them it was alone so I get full PPR (although it was also in the last 18 months of owning the house so does this change things?) and for 24/54 months I only get 2/4 (50%) PPR as I had 2 lodgers.
I'm just not sure how this translates into actual calculations?

Letting Relief
You can get the lowest of the following:
- the same amount you got in Private Residence Relief
- £40,000
- the same amount as the chargeable gain you made from letting your home <-- What does this mean?

CGT
130 000 - ?? - ??


Thank you for any help!

00ec25

you are correct that where there are 2 lodgers this restricts the extent of your PRR claim and you are also correct that the restriction takes account of the % of the property which was let. However, there is no specific method for doing that, but previous posts on here from ex HMRC staff stated that bathrooms are not included in room counts.

Surely your property has a sitting room/lounge or did you convert that to one of the bedrooms?

keeping to the assumption your property comprises 5 rooms in total: 3 bedrooms, kitchen/diner + sitting room that means 2/5 (40%) of the property has been let

you owned the property for 54 months
a) you let 40% of the property for 24 months
b) you let 100% of the property for 22 months
c) you lived there alone for the final 8 months

b) and c) overlap the final 18 months of your ownership so the adjusted periods are:
1. you let 40% of the property for 24 months and 60% of the property was PRR
2. you let 100% of the property for 12 months
3. you have the final 18 months as PRR

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64311
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64735


gross gain 130,000 (is this figure net of legal fees for buying and selling, EA fees for selling and, if applicable, SDLT paid on purchase?)

PRR
during lodger period: 130,000 x 24/54 x 60% = £34,666
final 18 months 130,000 x 18/54 = £43,333
Total PRR: £77,999

gain during the let period:
during lodger period: 130,000 x 24/54 x 40% = £23,111
during let period: 130,000 x 12/54 = 28,888
total gain during let period = £51,999

LR restricted to lower of :
- PRR: £77,999; or
- "gain arising by reason of the letting": £51,999; or
- max allowed £40,000

your LR is restricted to £40,000

net taxable gain: gross gain - PRR - LR - Personal allwoance (£11,300 at 17/18 rate, assuming not used up by other gains that year )

130,000 - 77,999 - 40,000 - 11,300 = £701

Tax will be due on £701 at 18% and / or 28% depending on your total income for that tax year

FaberC

Thanks for your reply and your help. It is really appreciated

00ec25 wrote: »

you are correct that where there are 2 lodgers this restricts the extent of your PRR claim and you are also correct that the restriction takes account of the % of the property which was let. However, there is no specific method for doing that, but previous posts on here from ex HMRC staff stated that bathrooms are not included in room counts.

Surely your property has a sitting room/lounge or did you convert that to one of the bedrooms? It doesn't have a living room, only a kitchen/reception room as one so I think that means 50% was let to lodgers. In terms of doing it with regards to floor space and excluding the bathroom it would probably be slightly below 50% let out. I have read that you could do it on floor space and that would reduce my liability overall I think but I don't want to do it unless it is a valid way to do it. In fact I've just done a quick floor space calculation (minus the bathroom) and the size of the bedrooms let out was 40/100 sqm so 40% which correlates with your original calculations.

keeping to the assumption your property comprises 5 rooms in total: 3 bedrooms, kitchen/diner + sitting room that means 2/5 (40%) of the property has been let

you owned the property for 54 months
a) you let 40% 50% of the property for 24 months
b) you let 100% of the property for 22 months
c) you lived there alone for the final 8 months

b) and c) overlap the final 18 months of your ownership so the adjusted periods are:
1. you let 40%50% of the property for 24 months and 60% 50% of the property was PRR
2. you let 100% of the property for 12 months
3. you have the final 18 months as PRR

https /www. gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64311
https /www. gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64735


gross gain 130,000 (is this figure net of legal fees for buying and selling, EA fees for selling and, if applicable, SDLT paid on purchase?) The 130,000 is net, I have already subtracted SDLT, solicitors buying and selling fees, no EA either time.

PRR
during lodger period: 130,000 x 24/54 x 60% = £34,666
during lodger period: 130,000 x 24/54 x 50% = £28,889
final 18 months 130,000 x 18/54 = £43,333
Total PRR: £77,999
Total PRR: £72,221

gain during the let period:
during lodger period: 130,000 x 24/54 x 40% = £23,111
during lodger period: 130,000 x 24/54 x 50% = £28,889
during let period: 130,000 x 12/54 = £28,888
total gain during let period = £51,999
total gain during let period = £57,777

LR restricted to lower of :
- PRR: £77,999; or
- "gain arising by reason of the letting": £51,999; or
- max allowed £40,000

your LR is restricted to £40,000

net taxable gain: gross gain - PRR - LR - Personal allwoance (£11,300 at 17/18 rate, assuming not used up by other gains that year )

130,000 - 77,999 - 40,000 - 11,300 = £701
updated 130000- 72,221 - 40000- 11100 (16/17 year)

Tax will be due on £701 at 18% and / or 28% depending on your total income for that tax year
Tax will be due on £6679 at 18% and / or 28% depending on your total income for that tax year

My total income for that year was probably around 32000 so would I pay at the 18% rate then? So my total CGT liability is £ 1202 ?

Thank you again for your help

00ec25

FaberC wrote: »

My total income for that year was probably around 32000 so would I pay at the 18% rate then? So my total CGT liability is £ 1202 ?

Thank you again for your help

for 16/17 higher rate tax started at 43,000 (32+11) so yes, your apparent total (pre tax) income of 38,679 falls with basic rate so £1,202 CGT to pay

(sorry can't resist the footnote - sounds like you are well shot of a horrid house, 3 occupants, no lounge)

badmemory

Of course you could always stick a dividing wall across separating kitchen/diner/lounge! That was said quite tongue in cheek, but some of the properties here are designed in different ways although the actually basics are identical, going from separate living room, dining room & kitchen, - living room, combined dining room & kitchen - through living/dining room, separate kitchen - open plan all three.

FaberC

00ec25 wrote: »

for 16/17 higher rate tax started at 43,000 (32+11) so yes, your apparent total (pre tax) income of 38,679 falls with basic rate so £1,202 CGT to pay

(sorry can't resist the footnote - sounds like you are well shot of a horrid house, 3 occupants, no lounge)

32000 was my income gross so I think I'm ok.
Also I haven't sold it well have I but it was a really lovely house. The rooms were huge and really high ceilings! It wasn't at all overcrowded. Although if I had to pick a niggle, the bathroom could have been bigger.

badmemory wrote: »

Of course you could always stick a dividing wall across separating kitchen/diner/lounge! That was said quite tongue in cheek, but some of the properties here are designed in different ways although the actually basics are identical, going from separate living room, dining room & kitchen, - living room, combined dining room & kitchen - through living/dining room, separate kitchen - open plan all three.

That's why I think the calculation based on floor size is better. Thank you

badmemory

FaberC wrote: »

Although if I had to pick a niggle, the bathroom could have been bigger.

Only ever come across one place (incl hotels) where I didn't think bathroom could be bigger. Why is that I wonder?