Lettings Relief Query

goodadvice12

Hi - ref Capital Gains Tax on a second property, it seems that the lettings relief rules have changed quite substantially and I would appreciate a bit of clarification please.
So I rented out my flat for the first five years of ownership - basically I had a lodger (fully declared rental income etc) so I think I can claim 50% Principal Private Residence Relief there (two bed flat so am calling it 50/50). And then I rented it out in its entirety for the next five years . I am now about to sell the property. 
It seems I can have a further 9 months as PPR (the final nine of ownership).
So my PPR would be 5/10 x 50% x the gain PLUS .75/10 x the gain.
Letting relief would seem to restricted to the lower of three figures, in this case it will be the same as the PPR relief it seems.
So is my lettings relief  the PPR relief for the FIRST five years only, or can i have it for those five years PLUS the final nine months?
The final relief would either be 5/10 x the gain PLUS .75/10 x the gain 
OR 5/10 x the gain PLUS 1.5 x the gain?

THANKS

oldbikebloke

LR is, as you say, the lower of the 3 values and since you give no figures, I assume neither PRR nor gain in let period is > £40,000?
In which case:
- PRR is the period in which you occupied a portion of the property as your own home (5/10 X 50%) x the gain PLUS final 9 months 0.75/10 x gain
and 
- gain in let period, which in your case is the 5 years you shared a portion of the property with a lodger (5/10  X 50%) x the gain  
As you did not share the property with a lodger in the final 9 months that element is expressly not part of the LR calculation, and anyway, had you so shared then that would have been a period of actual occupation, so the 9 months would vanish since actual occupation overrides the "deemed" occupation of the final 9 months, ie you can't double count it. 

LR is restricted to the time period when you had a lodger. It is not allowed on periods when you have a tenant. So which amount is lower? Mathematically it must be gain in let period.... (or £40,000)

goodadvice12

oldbikebloke said:

LR is, as you say, the lower of the 3 values and since you give no figures, I assume neither PRR nor gain in let period is > £40,000?
In which case:
- PRR is the period in which you occupied a portion of the property as your own home (5/10 X 50%) x the gain PLUS final 9 months 0.75/10 x gain
and 
- gain in let period, which in your case is the 5 years you shared a portion of the property with a lodger (5/10  X 50%) x the gain  
As you did not share the property with a lodger in the final 9 months that element is expressly not part of the LR calculation

LR is restricted to the time period when you had a lodger. It is not allowed on periods when you have a tenant. So which amount is lower? Mathematically it must be gain in let period.... (or £40,000)

Thanks for the speedy helpful answer. So the PRR gain is a lot lower than 40k so the final relief will not be 40k.
I follow what you are saying up to the final para, and then I get lost!
Lets assume Gain is 80k.
So PPR would be first five years at 50% (as I shared with lodger) so that would be 80 x50%x5/10 = 20k plus my extra
0.75/10x80k = 6k. for the final nine months.
Letting relief - so the gain due to letting must be 20k also? 
so I can claim 20 + 20 + 6

Is that correct?

THANKS!

Jeremy535897

I would also ask whether the lodger really occupied 50% of the property? See https://www.gov.uk/tax-sell-home/let-out-part-of-home and https://www.legislation.gov.uk/ukpga/1992/12/section/223B

Having said that, it may make no difference, as the PPR increases as the lettings relief decreases. I think that overall you are correct. The gain needs to be reported, and tax paid, within 30 days of completion.

oldbikebloke

goodadvice12 said:
Is that correct?

80k gain owned 10 years (ie 120 months)
5 years (60 months) lived in out of 10 owned. During which 50% was available as main residence

PRR:
60/120 x 50% x 80 = 20k
plus as you had in reality moved out, the "deemed occupancy" during final 9 months of the total ownership (10 years x 12 months  = 120 months) is to be added. As the entire property was let there is no requirement to restrict the claim to the portion occupied, since such a distinction is not made, so 9/120 x 80 = 6
Total PRR = 26K

Gain in let period 
limited to the period when occupation was in conjunction with a lodger. It does NOT include any deemed occupation since, by definition, you were not actually sharing with a lodger when you were not living there in the final 9 months.
LR period is 5 years (60 months)
Let period  = 60/120 x 50% x 80 = 20k

Max allowed LR
40k

LOWEST AMOUNT = gain in let period ie 20k

Overall therefore, yes your total claim is 80 - PRR 26 - LR 20 = 34 net gain 
deduct CGT exempt amount (12.3) and in this case the net taxable gain would be 21,700 (assuming no other gains that tax year)

As J says, the property sale and CGT due must be reported within 30 days of the legal completion date of the sale using HMRC's online reporting system
As the property was let and you are therefore already within annual self assessment, you will also need to repeat the report on your tax return 

goodadvice12

oldbikebloke said:

goodadvice12 said:
Is that correct?

80k gain owned 10 years (ie 120 months)
5 years (60 months) lived in out of 10 owned. During which 50% was available as main residence

PRR:
60/120 x 50% x 80 = 20k
plus as you had in reality moved out, the "deemed occupancy" during final 9 months of the total ownership (10 years x 12 months  = 120 months) is to be added. As the entire property was let there is no requirement to restrict the claim to the portion occupied, since such a distinction is not made, so 9/120 x 80 = 6
Total PRR = 26K

Gain in let period 
limited to the period when occupation was in conjunction with a lodger. It does NOT include any deemed occupation since, by definition, you were not actually sharing with a lodger when you were not living there in the final 9 months.
LR period is 5 years (60 months)
Let period  = 60/120 x 50% x 80 = 20k

Max allowed LR
40k

LOWEST AMOUNT = gain in let period ie 20k

Overall therefore, yes your total claim is 80 - PRR 26 - LR 20 = 34 net gain 
deduct CGT exempt amount (12.3) and in this case the net taxable gain would be 21,700 (assuming no other gains that tax year)

As J says, the property sale and CGT due must be reported within 30 days of the legal completion date of the sale using HMRC's online reporting system
As the property was let and you are therefore already within annual self assessment, you will also need to repeat the report on your tax return 

So just to be SUPER clear, the relief would be 20 + 20 + 6 = 46k?

goodadvice12

Jeremy535897 said:

I would also ask whether the lodger really occupied 50% of the property? See https://www.gov.uk/tax-sell-home/let-out-part-of-home and https://www.legislation.gov.uk/ukpga/1992/12/section/223B

Having said that, it may make no difference, as the PPR increases as the lettings relief decreases. I think that overall you are correct. The gain needs to be reported, and tax paid, within 30 days of completion.

Yes, point taken on 'lodger' - I think 'flat share' might be more accurate! The income was far in excess of the rent a room scheme. Thanks for your input and also the guidance to the exact legislation.

oldbikebloke

goodadvice12 said:

So just to be SUPER clear, the relief would be 20 + 20 + 6 = 46k?

yes, but it would not normally be expressed in that manner since deemed occupancy is part of PRR so it would be 26 not 20 + 6

pedantic, of course, but this is tax and details matter 

also as Jeremy alluded to, your assumption that 50% of the property was let simply because it is a 2 bed could be wide open to challenge. 
Although rather annoyingly I can no longer find the HMRC manual reference that an ex tax inspector (JIMMO where are you?) once posted, I recall he once wrote chapter and verse on the two basic methods:
- room count
- floor area count

the key point being it is not just bedrooms. A 2 bed flat must have some communal rooms, so 2 beds + sitting room + kitchen for example = 1/4 let, not 1/2 let.

I also seem to recall the JIMMO expressly stated certain rooms are ignored, although even he was unable to find the reference to the relevant manual page which he used before he retired from HMRC. The point being laboured was (I think) bathrooms and toilets don't count as communal rooms, but kitchens, sitting rooms dining rooms etc do, so the physical room count is a bit of a fudge. (Annoyingly Jimmo has a habit of retrospectively deleting his old posts so it is no longer possible to quote them)

goodadvice12

Thanks again.
But even if I assumed that say I had occupied 70% of the flat, and the flat share tenant/lodger 30%, presumably that would just alter the proportion of the reliefs?
So PRR would be 70% x 5/10x80 for those first five years - giving 28k
leaving my lettings element as 12k. 
so the final answer remains the same.  In which case I had better report the percentages I declared when i was submitting rental income figures in those years!
Thanks again

goodadvice12

Sounds like JIMMO was a helpful chap - will look out for him!

oldbikebloke

consistency with previously submitted info is always wise

sorry now too drunk to make sense of:

goodadvice12 said:

I had better report the percentages I declared when i was submitting rental income figures in those years!