Calculating CGT due on second property - a few specific questions

tg99

Property acquired for £260k as main residence in Jun 2002 and lived there until Sep 2007. Property then let until Oct 2018 and now empty. Due to be sold for £480k in Dec 2018. Estimated selling costs (solicitors, estate agent etc) £7k. Sole ownership throughout and no capital improvements.

So overall gain of £213k with PPR relief based on 63 months as main residence plus 18 months gives 81 months of total 198 month ownership. Therefore the gain liable to CGT (before deduction of any remaining CG allowance) would be £213k-((81/198)*£213k)=c£126k. Then deduct £40k Lettings relief gives £86k.

1. Is it correct that the date of purchase and sale to be used above are exchange of contracts rather than completion? If so, I may be able to obtain the exact 2002 exchange date from my solicitor used then if they are still contactable but if not is there any other way I can obtain?

2. Do you have to use exact days or can you round to months as per my calculation above?

3. I don’t think there would be any lessening of the chargeable gain from moving back into the property as main residence until completion of sale as (i) it would not change the fact that it had been let out for years so could not be counted as my main residence in that period; and (ii) the last 18 months exemption is already being claimed so an extra month or so as main residence now would overlap this so could not be claimed in addition.

4. Other than estate agent, solicitor/legal fees (incl those payable to management company) are there any other fees that can be claimed as sale costs? Can anyone direct me to the particular part of the HMRC manual covering this? Presumably as the property was initially acquired as a main residence in 2002 then any costs of the acquisition (stamp duty, agent and solicitor fees etc) could not be deducted from the gain? And any costs like for travel to the property to prepare it for sale would be deducted from 18/19 property income rather than the gain?

5. If the property is made available to rent for the current empty period (to friends, family, etc) until completion then can costs in this period (mortgage fees, management charge etc) still be deducted in the normal way (and taking into account the new rules being phased in regarding finance exoenses) from property income for 18/19 income tax?

Thanks

00ec25

1. technically it is when the contract becomes unconditional
In most cases that will be on exchange since the contracts for property purchase do not tend to have odd conditions ("conditions precedent") written in them which are only met upon completion date. So exchange is often / normally when the contract became unconditional

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14270

2. you have the choice (although using years would be foolish)

3. correct, final 18 months means just that, occupancy overlaps if part of the final period would, by definition, be double counting and thus excluded.

4. purchase costs do include those you mention, what you seem to have misunderstood is it is not the purpose of the acquisition which matters, it is the act of acquisition itself which is subject to the wholly and exclusively rule

you can work through the pages yourself, they start here, hint: pay close attention to "incidental costs" : https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15150p

travel costs are revenue costs, not capital.
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2220
They relate to the cessation of the lettings business
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim3000

as such they are covered under the general rules applicable to trading activity
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim90000

5. It cannot be let rent free, but letting on non commercial terms is allowed although it restricts the cost that can be claimed so you cannot create a tax loss, the "best" you can do is to show a break even.
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2130

On that basis yes, you can claim those costs, subject to the finance cost restriction you mention.

tg99

00ec25 wrote: »

1. technically it is when the contract becomes unconditional
In most cases that will be on exchange since the contracts for property purchase do not tend to have odd conditions ("conditions precedent") written in them which are only met upon completion date. So exchange is often / normally when the contract became unconditional

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14270

2. you have the choice (although using years would be foolish)

3. correct, final 18 months means just that, occupancy overlaps are specifically excluded since, by default, they are part of the final period

4. purchase costs do include those you mention
you can find the pages yourself, they are here: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15150p

travel costs are revenue costs

5. It cannot be let rent free, but letting on non commercial terms is allowed although it restricts the cost that can be claimed so you cannot create a tax loss, the "best" you can do is to show a break even.
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2130

On that basis yes, you can claim those costs, subject to the finance cost restriction you mention.

Thanks very much for the detailed reply and associated links which I’ll have a read through. Can I just clarify though re your answer to 4, are you saying that even though I purchased the property originally as a main residence and did not let it out at the start, I can still deduct the purchase costs (such as stamp duty etc) in the same way as I have deducted the selling costs in my calc above? Will HMRC allow me to use estimates if I can not obtain the exact figures for the legal fees from my solicitor used in 2002? Thanks

00ec25

I was busy editing whilst you posted, so my reply above now includes more

tg99

00ec25 wrote: »

I was busy editing whilst you posted, so my reply above now includes more

yes you can use an unsubstantiated value - I can't be bothered to find the exact page at this time of night but there is a set figure if you cannot produce actual

Great, thank you.

[Deleted User]

tg99 wrote: »

Great, thank you.

00ec25 is (probably) to modest to refer to this:

https://forums.moneysavingexpert.com/discussion/5764759/cgt-and-letting-relief&highlight=top

but his response to the query will help you and others enormously.

jimmo

[Deleted User] wrote:

........ to modest.......

AAAARRRRGGGGHHHH!

You could OF asked.
I would OF told you how to spell "too".

00ec25

[Deleted User] wrote:

00ec25 is (probably) to modest

no way, just I'm two lazy 2 post it

tg99

Having done a bit of further reading, a few other questions that come to mind (some of which relate to the scenario above but others more of a general interest and for future reference):

1. I know for the scenario in the opening post above no period of absence could be claimed as another main residence was owned during the absence (I.e. when it was let). However, am I correct that if in the period you let it out you actually rent elsewhere (as opposed to purchasing another residence) then you can thus claim up to 3 years absence as long as you live in it before and after as a main residence? (The latter being on the basis that you don’t simply move back in for a month or two at the end but actually reoccupy with sufficient degree of permanence and expected continuity and that you can provide evidence of such (e.g. through changing address details with employer, council, banks; utility bills showing useage etc).)

2. You buy a residence (and own no others) and move there from rented accommodation or parents’ house for example and you complete five weeks after exchange of contracts. But when you sell the property you complete one week after exchange. Would this technically mean you actually don’t get full PPR relief as the ownership period is based on exchange dates whereas the period of occupation as main residence is based on completion dates (assuming you move in and out on completion day)?

3. If in 2. above you buy a new build and therefore exchange contracts a long time before completion then this might further reduce your PPR relief depending on the conditions in the contract and whether you can claim the first 12 months absence as deemed occupation due to it not having been completed?

4. In terms of incidental costs of acquisition and disposal, my interpretation is that a mortgage redemption fee at sale would not be allowable. However, the manual does state that costs related to ‘cost of transfer and conveyancing’ are allowable so would that mean any costs of your mortgage provider relating to the conveyancing as part of the title transfer (e.g. deeds fee) is allowed? In addition, whilst it does allow surveyor / valuer costs, presumably these would have to be for your own commissioned survey (e.g. if you paid for a Homebuyers survey) as opposed to one purely for the purpose of the lender carrying out their valuation?

5. In terms of improvement costs for capital gains purposes, if enhancement expenditure is incurred on improvements when you first move in but don’t let the property until several years later then would it still be classed as having enhanced the value of the asset (presuming it is still in place at the date of disposal)?

6. Same as 5. but if the improvements are instead done in the last few months of letting to prepare the property for marketing for sale (since the property can start to be marketed whilst the tenants are still in situ).

7. I think you can claim for repairs against property income (against the first year’s rent) in the period of up to 7 years before the property is first let. Presumably this would not include those repairs you carried out whilst you were living there for several years as your main residence? But what if in the last few months before starting to let it you carried out some repairs to make it ready to let?

Apologies for the long list but would welcome any thoughts, thanks!

tg99

Apologies to ‘bump’ this thread but just seeing if anyone had any thoughts on the qu in my post above incase had not seen the first time, thanks.

silvercar

1. No

2.& 3. You should be OK for at least a year. See: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65003

4. normally people have one combined survey that provides condition and valuation

5. I would think so.

6. very generous tenants to allow capital improvements to take place on a property they will soon be leaving!

7. I didn't think you could...