Capital Gains on a 2nd property

regional

Hello, we lived in our house for 23 years and have let it for the last 7 years. We understand we will have a CGT liability but we are getting conflicting information. Looking at the HMRC website we can claim Private residence relief as well as letting relief, but our Accountant says the correct  formula is to take the valuation of the property when we moved out (250k ) and the value today (350k ) and then from that 100k gain deduct moving/selling costs, CG allowance of £12,300 and then pay 18% on that final figure. Using the two different formulas  does generate a different liability so we are so confused ?  Can anyone help ? Many thanks for reading.  

Jeremy535897

You calculate the overall gain from the date of purchase to the date of sale. 23 years (plus the last 9 months) of ownership are exempt. 7 years (less 9 months) is chargeable. You can deduct purchase costs, selling costs, and costs of improvements that are reflected in the value of the property when calculating the gross gain. See:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2022

If there is tax to pay, see:
https://www.gov.uk/report-and-pay-your-capital-gains-tax

Keep_pedalling

I think you need a new accountant. 

Letting relief is now only available where you let out part of the property but continued to live there yourself.

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2022

regional

Thank you for taking the time out to send info. I am just surprised that our Accountant is not adopting the same formula ?

regional

Thanks Keep-Pedalling that is great info did not realise that which makes a big difference to the calculations.

Jeremy535897

Letting relief disappeared for gains after 5 April 2020, unless you had a lodger, as set out in HS283 (the first link I supplied).

Taking your approximate figure of £100,000 as the gain, the chargeable part would be about 75 months and the exempt part would be about 285 months. So the chargeable gain would be £100,000 x 75/(285+75) = £20,833. If the house is owned equally between you and your partner, the gain would be £10,467 for each of you, which is within your annual exemption, if no other gains were made in the same tax year by you both.

[Deleted User]

The proposal by your accountant that you subtract the value of the property when first let out from the eventual sale price to arrive at the gain is just plain wrong. I would be changing my accountant if that is truly what has been suggested. 

Perhaps if the original cost of the property is provided some of us can calculate the actual gain and tax payable which may or not all be taxable at 18%?

If, for example, the original purchase price was £90000 and the buying and selling costs were £10000 the gain for each would be £175000 -£45000 - £5000 = £125000. 

The property has been owned for 360 months of which 276 as private residence. One can add 9 to the 276 meaning that 285/360 of the £125000 is exempt - £98958. This leaves 26042 from which £12300 can be deducted leaving £13742 chargeable at 18%, 28% or a mixture of both.

[Deleted User]

Jeremy535897 said:

Letting relief disappeared for gains after 5 April 2020, unless you had a lodger, as set out in HS283 (the first link I supplied).

Taking your approximate figure of £100,000 as the gain, the chargeable part would be about 75 months and the exempt part would be about 285 months. So the chargeable gain would be £100,000 x 75/(285+75) = £20,833. If the house is owned equally between you and your partner, the gain would be £10,467 for each of you, which is within your annual exemption, if no other gains were made in the same tax year by you both.

I appreciate that, like me, you have attempted to assist with an example. The methodology used by the ‘accountant’ is the most worrying aspect of the op and I was keen to deflect from that - but our posts crossed.

regional

House purchased for 60k, 23 years lived it, moved out Sept 1991. Current value is 350k. All comments are very valid, we should change Accountants as he clearly does not understand the full workings on CGT.

[Deleted User]

regional said:

House purchased for 60k, 23 years lived it, moved out Sept 1991. Current value is 350k. All comments are very valid, we should change Accountants as he clearly does not understand the full workings on CGT.

Are you sure about Sept 1991?

Jeremy535897

purdyoaten2 said:

Jeremy535897 said:

Letting relief disappeared for gains after 5 April 2020, unless you had a lodger, as set out in HS283 (the first link I supplied).

Taking your approximate figure of £100,000 as the gain, the chargeable part would be about 75 months and the exempt part would be about 285 months. So the chargeable gain would be £100,000 x 75/(285+75) = £20,833. If the house is owned equally between you and your partner, the gain would be £10,467 for each of you, which is within your annual exemption, if no other gains were made in the same tax year by you both.

I appreciate that, like me, you have attempted to assist with an example. The methodology used by the ‘accountant’ is the most worrying aspect of the op and I was keen to deflect from that - but our posts crossed.

Yes, I agree. I had not picked up on the point that the value given was at the date of moving out. It never crossed my mind that an accountant could ever think that a value at that date could be relevant. The original cost is probably much smaller than £250,000, and therefore the chargeable gain will be bigger. If we assume that the original cost was £100,000, say, the chargeable gain becomes something like £350,000 less £100,000 = £250,000 x 75/(285+75) = £52,083. Half each is £26,042, less £12,300 annual exemption (subject to there being no other gains in the tax year), gives £13,742 (subject to purchase costs, improvements and selling costs).

The rate of tax payable depends on the vendors' taxable income:
https://www.gov.uk/capital-gains-tax/rates

The gain is reportable and the tax is payable within 60 days of completion, as per my earlier link.