Capital Gains

BKD1972

Good Morning
I have a question about capital gains. I bought a house with my partner in 2006 for 126000 just before the crash. We lived in it until 2011 when we split up. At that time the house was valued at 112000 and as we owed 100000 on the mortgage I paid my partner half the equity and we transferred the deeds/land registry to my name. I then let it out.

I've now sold the property for 140000 in 2019.

I tried the calculator which forces me to put in my original responsibility of the purchase price, so 63000. But then I have to put in the sale price of 140000. This means according to the tool I made a gain of 77000 but I don't think this is correct. The change in circumstances in 2011 where the house changed hands my actual responsibility became 112000.

Please can anyone give me an idea as i'm getting myself in a state of confusion?

Thankyou

Mutton_Geoff

BKD1972 wrote: »

Good Morning
I have a question about capital gains. I bought a house with my partner in 2006 for 126000 just before the crash. We lived in it until 2011 when we split up. At that time the house was valued at 112000 and as we owed 100000 on the mortgage I paid my partner half the equity and we transferred the deeds/land registry to my name. I then let it out.

I've now sold the property for 140000 in 2019.

I tried the calculator which forces me to put in my original responsibility of the purchase price, so 63000. But then I have to put in the sale price of 140000. This means according to the tool I made a gain of 77000 but I don't think this is correct. The change in circumstances in 2011 where the house changed hands my actual responsibility became 112000.

Please can anyone give me an idea as i'm getting myself in a state of confusion?

Thankyou

Mid point valuations don't count for CGT only your purchase and selling price less any legimate costs along the way. There will be no CGT for the period when it was your primary residence. An accountant will sort this out in a short time, I wouldn't try to do it myself as the cost of a simple mistake is so high.

BKD1972

Thanks
I will be getting an accountant to do it but its next year and am trying to get an idea.

To calculate the 'no CGT for the period when it was your primary residence' do I take the total gain 77000 then divide it by the number of months I owned the property then x it by the number of months I lived in it (taking into consideration the final 18 months of ownership also)

Ownership 156 months so 77000/156 = 493.59
Lived in it 60 months plus the final 18 months = 78 months

78*493.59 = 38500 private residential relief

BKD1972

Further to this it appears I can also claim relief for the period I rented it out for. Another 78 months of rental relief.

Crashy_Time

https://www.rrlcornwall.co.uk/articles/tax-blog/how-will-letting-relief-changes-affect-landlords/

five_four_three_two_one

AIUI, you paid £63,000 in 2006 for half the property, and £56,000 (as a combination of cash and taking on the other half of the outstanding mortgage) in 2011 for the other half. That is total costs of £119,000. With a sale price of £140,000, your overall capital gain is £21,000. (Note that you can also deduct (your share of) costs of purchase and sale from this figure, if you haven't already included them.)

That £21,000 capital gain is then reduced by Principal Private Residence relief and by Lettings relief (note that the latter will not apply for sales after the current tax year). I'm not 100% sure how those reliefs are applied in this case, where you've bought the property in 2 stages; but I'd guess it's as follows ...

Maybe the half of the property you bought in 2011 doesn't benefit from those reliefs at all, because you didn't live in the property from 2011. And that half has a gain of £14,000 (from £56,000 to £70,000 - half of the sale price). But there is some relief on the £7.000 gain (from £63,000 to £70.000) on the first half of the property.

Supposing you owned the property for exactly 13 years, i.e. 156 months, and it was your PPR for the first 60 months, then you also get PPR relief for the final 18 months, so in total PPR for 78 months. That leaves 156 - 78 = 78 months for which you don't get PPR. In which case, provided the property was let throughout that period, you get Lettings relief for the other 78 months, so the £7.000 gain on the first half of the property is reduced to £0. But I don't know the exact numbers of months involved, and lettings relief cannot be for more months than PPR relief, so if the numbers of months differ, it may not be reduced to £0. E.g. if you had 155 months of ownership, and 75 months of PPR relief, then you'd be limited to 75 months of Lettings relief, which leaves 5 months not relieved, so the £7,000 gain would be reduced to 5/155 x £7.000 = £226 gain.

Then add that remaining gain on the first half of the property (£0 or £226 or whatever) to the gain on the second half (£14,000) and you have the final gain (of £14,000 or £14,226 or whatever).

If you sold during the current tax year (on or after 6 april 2019), then your annual CGT allowance is £12,000. If you have no other gains during the year, that means you will pay CGT on gains over that amount, i.e. on £2,000 or £2,226 or whatever. At either 18% or 28%.

00ec25

five_four_three_two_one wrote: »

AIUI, you paid £63,000 in 2006 for half the property, and £56,000 (as a combination of cash and taking on the other half of the outstanding mortgage) in 2011 for the other half.

the cost paid by OP for the remaining 50% in 2011 does NOT include half the o/s mortgage as that is a not a cost paid to the ex

OP states he paid the ex "half of the equity" so £6,000, therefore the cost for OP in becoming 100% owner in 2011 was original 50% @ 63,000 plus remaining 50% @ 6,000 Total 69,000
the o/s mortgage is irrelevant

GDB2222

00ec25 wrote: »

the cost paid by OP for the remaining 50% in 2011 does NOT include half the o/s mortgage as that is a not a cost paid to the ex

OP states he paid the ex "half of the equity" so £6,000, therefore the cost for OP in becoming 100% owner in 2011 was original 50% @ 63,000 plus remaining 50% @ 6,000 Total 69,000
the o/s mortgage is irrelevant

54321 gave the correct answer. I'm sorry you can't see that.

By your logic, why are you including the original purchase at 63000, when most of it was funded by debt?

BKD1972

My issue from the outset is I never made 77000 gain. I paid a bit off and then paid the interest only mortgage while the property was let and ended up with 44000 equity. Had I come out with 77000 I'd understand.

I don't see any place for inputting that I took on the other 56000 of costs via a new mortgage.

Thanks for your in depth explanation five four three two one