Capital Gains Tax on previous family home

jarweb

Posted this on the savings and investment forum earlier but was suggested I try this one instead.

My partner bought her long time family home around 1997 from the local council for about £30,000 and continued to live there for a further 10 years. She'd lived there since childhood.  I moved in for roughly the last 2 or 3 years of that.

We then decided to let the property when we moved out.  We took out a buy to let mortgage for £60,000 to offset part of the mortgage on our new home.

We now plan on selling the previous property and the asking price will be around £90,000

My question is.  When it comes to Capital Gains Tax, will the gain be £60,000 (90-30) or £30,000 (90-60).    This is obviously going to make a big difference to the amount of tax we will need to pay.

I've looked at various examples previously which includes private residence relief but I'm still not sure if the bottom line gain (minus the residence relief) should be the £60K or the £30K.    Does the fact we re-mortgaged not come into it ?  This is the part that's causing me confusion.

If we'd just sold the house at the time for £60K we wouldn't have CGT as it was our main home.  Or is it just a case of "well, you didn't sell so it doesn't count"  ?

There's also the fact that I didn't live in the property all this time but my partner did.

Sorry if these are pretty basic questions but it's not something we've ever had to work out.

soulsaver

Pulled this over from other post for starters:

Aceace said:

You get private residence relief for the time you lived in it plus an extra 9 months (I.e. 0.75 years).
So, you owned it for ~24 years and would receive private residence relief for 10.75 of those years. 
You would pay CGT on (24 - 10.75)/24 * gain = 0.552 * £60k = £33,125 minus your CGT allowance. 
See government website here: https://www.gov.uk/tax-sell-home/let-out-part-of-home for a worked example.

soulsaver

and this:

soulsaver said:

The fact that you re-mortgaged doesn't come into the gain calculation.

jarweb

OK thanks.

It's also complicated (in my head anyway) by the fact we only jointly owned the property for the last few years we lived there plus the time it has been let.

Is there a simple-ish way to work this out or are we heading into needing an accountant territory ?  Obviously rather not have the additional cost but obviously want to keep ourselves right.

Thanks

Pennywise

It's not clear when/if you became legally the joint owner.  Unless you were legally married/civilly partnered at that time, your "base cost" for your half share is the value at the time you acquired your half share.  Your partners' base cost is the original price paid for it (or half of it).  The £60k mortgage doesn't come into it at all.  Yes, it is going to be complicated as your partner will have more years exemption when it was the "main residence", but you won't have so many years as you lived in it as your home for fewer years (but likewise you had fewer years of ownership overall).  Perhaps we can help more if you clarify exactly how and when you became a joint owner and what you paid for it (if any).

jarweb

Hi
I'll need to dig back through paperwork for specific information as it was a while ago now and I can't remember things from last week at the moment, never mind over 15 years ago.  I'll post back when I have this.
Thanks again.

jarweb

 I've done a bit more reading on the HMRC site and followed some examples and got my head round it a bit more regarding Private Residence and Letting Relief.
But I still don't know how we split the costs as I owned the property for less time than my partner.  I did find something on the HMRC website about married couples effectively "inheriting" the same timescales for occupancy for tax purposes.
We are actually not married so I assume this doesn't apply.

In summary (I'll put in approximate figures but correct dates):
My  partner bought the house from the council at a reduced rate of £20,000 in 1997.  House was actually valued at £35,000 (don't know if this matters).
I moved in and the property was put into joint names (Land Registry) in 2004.  We re-mortgaged for the same amount as the previous one but in joint names. As per the question above I didn't pay anything for it (as in a lump sum), we just put everything into joint names and split the costs going forward.

We moved to a new home in 2006 and started letting the property (re-mortgaging with a buy to let mortgage of £60,000 at the same time).
We are now selling the property (2021) and, assuming it sells, value will be around £95,000

So the house has been owned by my partner for 24 years, jointly with me for 17 years.  
She lived in the house for 7 years, then both of us for a further 2.  Then it was let for 15 years.
This is where I am not clear about submitting any tax claims etc.
Thanks


 

[Deleted User]

For completion, can you provide a value in 2004 when you moved in and the house was put in joint names? You may have that given that it was remortgaged at that time. You need this to work out your share of any capital gain.

Jeremy535897

Your partner's base cost for her half of the property is £10,000 (half the original cost). It doesn't matter what the house was valued at. She was treated for tax purposes as making a disposal of half the property to you in 2004 at market value, but no taxable gain arose as it was her main residence for the period 1997 to 2004. Your base cost is the market value of your half at 2004. The re-mortgaging process may have included a value of the property in 2004. For the sake of illustration, assume your half of the property was worth £20,000. I will also assume that there were no improvements to the property that are reflected in its current value.

Her gain is say £92,000 proceeds (after selling costs) divided by 2 = £46,000 less base cost of half = £10,000 so gain = £36,000. Exempt gain is 9.75 years (last 9 months treated as exempt). Taxable gain is therefore 24 - 9.75 = 14.25 years (approximately). Chargeable gain is therefore £36,000 x 14.25/24 = £21,375, less £12,300 annual exemption (assuming no other gains and no losses) leaving £9,075 chargeable.

Your gain is £46,000 less £20,000 = £26,000. Taxable element is 14.25 years out of 17, which gives a chargeable gain of £26,000 x 14.25/17 = £21,794, less £12,300 annual exemption (assuming no other gains and no losses) leaving £9,494 chargeable.

The rate of tax will be 18%, 28%, or a mixture of the two, depending on whether you are higher rate taxpayers. Any tax due must be reported and paid within 30 days of completion.

The budget on 3 March 2021 could change all of this.

soulsaver

@Jeremy535897 Can't they both use their individual CGT allowance - so 2 x £12300 (assuming no other chargeable gains)?

Jeremy535897

soulsaver said:

@Jeremy535897 Can't they both use their individual CGT allowance - so 2 x £12300 (assuming no other chargeable gains)?

That's what I have done if you look at my figures above.