Do I owe Capital gains tax ? 24 August 2022 at 2:12AM in Cutting tax 6 replies 186 views

Esiuol_1

Hi,

Please could anyone clarify if we need to pay capital gains and if so how much ? I appreciate it may be a rough estimate.  Ive looked at HMRC page but find it confusing.

2002 - joint tenancy with council started

2007 - we purchased the property from the council under Right to buy scheme purchase price after discount 50,000 however full valuation 75,000

2008 - we obtained consent to let through our lender (never had a buy to let mortgage) and started renting the house out as we moved 60 miles away for my husbands work.  Technically lived in the house 1 year after purchase (however 6 years from being council tenants)

2022 - sold our house for 96,000

Husband earns 19,700 & I earn around 10,500

(We have always private rented since moving).

Can anyone help with this ?

Esiuol_1

Selling costs were around 3,300 & no significant home improvements.

Keep_pedalling

The period you rented is not relevant, and it is the price you paid that counts not the pre discount price.

Your gain less selling costs = £43,000, you can claim Primary residence relief for 21 months of your 180 month ownership (12 months you lived there + the last 9 months of ownership) so £43,000 / 180 x 159 = £37983. You each have an annual CG allowance of £12,300 so assuming you have not used any on other disposals this brings the taxable gain down to £11216 (half each). Based on your income the rate will be 18%.

The above figures are ballpark and you will need to redo the figures using the exact months of ownership and occupation.

p00hsticks

There is a government calcualtor here

https://www.gov.uk/tax-sell-property/work-out-your-gain

Bear in mind that you should be paying any CGT due within 60 days of completing the sale of the property. 

Esiuol_1

Hi, thank you for the replies.

With regards to the hmrc calculator, it is asking if we bought the property for less than it was worth because the seller wanted to help?  (Which isn't that what the council right to buy is?)
If I answer yes then its asking what the property was worth when purchased, which the full valuation was 75,000 

Am I correct in answering this way?

Sorry to seem stupid here, this is the only house we have ever owned & never had to pay CGT on anything before.

p00hsticks

Esiuol_1 said:

Hi, thank you for the replies.

With regards to the hmrc calculator, it is asking if we bought the property for less than it was worth because the seller wanted to help?  (Which isn't that what the council right to buy is?)
If I answer yes then its asking what the property was worth when purchased, which the full valuation was 75,000 

Am I correct in answering this way?

Sorry to seem stupid here, this is the only house we have ever owned & never had to pay CGT on anything before.

I'm not an expert but I think in your situation you put what you actually paid.

As I understand it The 'seller wanted to help' part of the questionnaire is more aimed at connected people (e.g relatives) who sell properties to each other at below market value, parlty to help out and partly to try to avoid paying CGT on the property themselves.

The council sold you the property at the price that legislation forced them to, not necessarily because they wanted to ...

Jeremy535897

It surprises me that I can find no evidence that this question has ever been satisfactorily answered. The question is whether the property was acquired "by way of a bargain made at arm's length". If it was, then the base cost is the price paid. If not, the base cost is the market value.

HMRC clearly state that they look for a subjective intent on the part of the seller to provide the purchaser with a gratuitous benefit for there to be a bargain made otherwise than at arm's length. See https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14542

If the subjective intent is absent, the price paid is used. As the council was forced to sell the property (many did not wish to do so) at a discounted price, the subjective intent is absent. Therefore the price paid, not the market value, is the base cost. Whilst this view by HMRC may be open to challenge, it is likely to be something they would fight in the tribunal.