Capital Gains Tax

GOINGONCE

Hello Cutting Tax Forum

I’m clueless and wary of relying on google. Garbage in, garbage out! Hoping someone can help with guesstimate re CGT due before I engage accountant (if necessary) to complete tax return when property is sold.

Bought flat (in Scotland) in November 1989. Lived there for 7 months. Let flat (via agent) in June 1990, returning to live there for 11 months in 1994. Stayed there on holiday for a couple of weeks in 2002 - although that’s probably irrelevant. Other than when I lived there (and was on holiday) the flat has been let (via agent) until January 2022. I do not (and have not) owned any other property. I live in England.

I’m now selling the flat. It’s valued at £165,000. I paid £35,000 (I think!). I don’t remember the fees when I purchased the flat but I think they may have been around £1,200. Selling fees are estimated to be £3,500.

I’m a basic rate tax payer with no other capital gains. I’d like to have some idea of how much CGT is likely to be due assuming it sells for £165,000? And when this needs to be paid. Hoping someone can help so that I can plan how to use the money left after selling fees and CGT. Thank you.

Jeremy535897

Gross gain on your figures is £165,000 - £35,000 - £1,200 - £3,500 = £125,300.

If the flat was your main residence for the 18 months you lived in it, then 27 months is covered by the main residence exemption (you add the last 9 months of ownership). Assuming you own the flat for say 390 months, the taxable gain is £125,300 x 363/390 = £116,625, from which you deduct (assuming no other gains or losses) £12,300 annual exemption, leaving £104,325 taxable.

To the extent that the gain plus your taxable income exceed the basic rate of tax, the capital gain will be taxed at 28% (the bit within the basic rate band is taxed at 18%). See: https://www.gov.uk/capital-gains-tax/rates

You will need to report the gain and pay the tax within 60 days of completion:
https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

GOINGONCE

Hi Jeremy5356897

Thank you. You made my day! Your answer is comprehensive and detailed. And came very quickly.

If I'm not imposing can I ask you for one clarification. I'm not being lazy but would you clarify what is the maximum that can be taxed at 18% (income and capital gain combined) so that I can work out how much of the gain might be taxed at 28%. 

Thank you. 

Jeremy535897

The basic rate is £12,571 to £50,270 for English residents (the fact that the property is in Scotland does not affect anything). If you earned £30,000, assuming no other income, then £20,270 would be taxed at 18%.

GOINGONCE

I get it! I owe you. Thank you. You've saved me a lot of time faffing around with google.

All being well, I think that I should be able to complete the tax return without needing to engage an accountant. No disrespect if you are one!

Jeremy535897

GOINGONCE said:

I get it! I owe you. Thank you. You've saved me a lot of time faffing around with google.

All being well, I think that I should be able to complete the tax return without needing to engage an accountant. No disrespect if you are one!

As it happens, I am. I can also say that the cost of producing all the paperwork involved in taking on a new client, even for a one-off like this, would far outweigh any fee that could be charged for it.

You will need to change my figure of 390 months for what actually happens.

[Deleted User]

GOINGONCE said:

I get it! I owe you. Thank you. You've saved me a lot of time faffing around with google.

All being well, I think that I should be able to complete the tax return without needing to engage an accountant. No disrespect if you are one!

Don’t forget that not only will you have to declare the gain and pay the tax within 60 days but you must also complete a self-assessment tax return for whatever financial year the transaction occurs -in which the contracts become unconditional. I have heard that there are frequent occurrences of the former but not the latter happening.

GOINGONCE

Thanks for your advice. I didn't know. Thanks again to Jeremy535897 I didn't need to google!

Between the two of you, I hope that I'm good to go. It seems (dare I say it) to be relatively straightforward and something that I should be able to manage without engaging an accountant.

jimmo

The period between when you moved out in 1990 and returned to live in the flat in 1994 is a period of absence of about 42 months.

Depending on your circumstances a qualifying period can be 3 years, 4 years or unlimited.

As long as you had no financial interest in any other property at the time any qualifying period will be regarded as a deemed occupation of you flat and therefore be relievable.

If we assume that full 42 months is a qualifying period Jeremy's calculation will become:

125300*321/390 =103,131.

Taking away the Annual exempt amount of £12300 leaves £90831 chargeable to tax. gain

 

I think you could really be pushing your luck to argue that a couple of weeks holiday in 2002 created another period of absence between 1994 and 2002 but if, for example , you returned from working abroad, stayed for a couple of weeks and then moved to a new job you could have a case.

.HS283 Private Residence Relief (2021) - GOV.UK (www.gov.uk)

See "periods of absence" in the link above but I would suggest it is worth you reading the whole thing.

Jeremy535897

jimmo said:

The period between when you moved out in 1990 and returned to live in the flat in 1994 is a period of absence of about 42 months.

Depending on your circumstances a qualifying period can be 3 years, 4 years or unlimited.

As long as you had no financial interest in any other property at the time any qualifying period will be regarded as a deemed occupation of you flat and therefore be relievable.

If we assume that full 42 months is a qualifying period Jeremy's calculation will become:

125300*321/390 =103,131.

Taking away the Annual exempt amount of £12300 leaves £90831 chargeable to tax. gain

 

I think you could really be pushing your luck to argue that a couple of weeks holiday in 2002 created another period of absence between 1994 and 2002 but if, for example , you returned from working abroad, stayed for a couple of weeks and then moved to a new job you could have a case.

.HS283 Private Residence Relief (2021) - GOV.UK (www.gov.uk)

See "periods of absence" in the link above but I would suggest it is worth you reading the whole thing.

Yes, good point.

Jeremy535897

I should add that these periods of absence are not that easy to claim for, because if you occupied somewhere else as your main residence in these periods of absence, you will not qualify for extra relief, unless you nominated the original house as your main residence. There is a two year time limit to do that, unless the other property is somewhere you rented rather than owned.