Capital gains help please

BB.

Hi, I’m hoping for some advice re capital gain tax on rental property please.

I bought this property (flat) in 2011 for £185k and it used to be my only home until my now husband and I, bought a house together in 2017. For a smoother purchase transaction I was advised by Eastate agent to turn my flat into a rental, which I did. I applied for buy to let mortgage with Leeds who valued the flat at £320K. I’m currently switching mortgage provider to TSB and they just valued it at £320k, 5 years on (!) Due to unfavourable market, personal circumstances and general anti landlord rhetoric I will be looking to dispose of the property at the end of 2024 / beginning of 2025. I understand that since it used to be my home and only property at the time, I will be due to pay CGT on the value increase since it became my second property I.e. 2017. My question is what documents do I use to evidence the value in 2017? Can I use above mentioned Leeds BS valuation report?  

I only have a paper version of it and I recently spotted two issues with it. First: there is no date on the valuation report, only my mortgage account number with Leeds. Two: Leeds sent me a letter with that report which is dated, however the account number on it is different to the one on the report. Could this be an issue? For any queries and online access I use the account number that’s on the report not the dated letter sent with it. 

As you can see there has been a significant gain in value whilst it was my home but not after so I am really keen to make sure I have the documents in order to prove it but I a, a complete novice to CGT rules…

Your advice will be greatly appreciated. 

jimmo

I am afraid your understanding is badly wrong.

You have to calculate the overall gain arising during your period of ownership and then apportion that gain between exempt periods ( when you lived there plus, currently, the final 9 months of ownership) and non exempt periods.

The value of the flat in 2017 just doesn't come into it at all.

 

This is all explained in HS283 issued by HMRC and you really need to study this.

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

[Deleted User]

Let’s say that you bought the property in January 2011 and are selling in January 2025 - that’s 168 months. It ceased to be your main residence in (say) January 2017 - it was your main residence for 72 months. Add 9 to this (as it was your main residence at some point) and we have 81 months -this is the apportioned period. 

Your gain is 135000. You can deduct buying and selling costs (say 5000 because I like round figures) and we have a gain of 130000. The relief available is 81/168 x 130000 which is 62678. The gain before annual exemption is, therefore, 67322. This is before deducting the annual exemption which will be only 3000 by then. 64322 will be chargeable at 18%, 28% or a mixture of both although goodness knows what the rates will be in 2024/25.

BB.

Thanks for that. That’s very helpful albeit unlucky for me. When I bought the property in 2011 I carried out a renovation throughout the property for about £30k . This was 10 years ago, will I be required to provide the invoices and receipts from back then? Other than improvement work and buying / selling costs, is there anything else I can deduct? 

Alternative are you able to advise what type of paid professional can provide further help and how best to find someone good?

Many thanks 

[Deleted User]

BB. said:

Thanks for that. That’s very helpful albeit unlucky in my case. When I bought the property in 2011 I carried out a renovation throughout the property for about £30k . This was 10 years ago, will I be required to provide the invoices from back then? Other than improvement work, and buying / selling costs, is there anything else I can deduct? 

Alternative are you able to advise what type of paid professional can provide further help and how best to find someone good?

Many thanks 

If they were improvements they are certainly able to be claimed. Be careful though - this is not always straightforward.

https://www.accountancy.coop/downloads/helpsheet-LaP-Improve-or-Repair.html

You would only need to provide invoices if requested by HMRC in the event  of any enquiry.  

In terms of professional help, I’m sure that jimmo won’t mind if I share that he is a specialist in this area. I can’t see what further advice can be given so far in advance of a sale. 

Certainly, at completion, seek advice from a reputable accountant if it is the form filling and declaration that concerns you most. 

I should also add that any gain currently has to be declared and tax paid within 60 days of completion in addition to including it on the relevant self assessment tax return. 

Jeremy535897

I would only add that as the OP is married, it may possibly be beneficial to split the ownership between the spouses well in advance of a sale if the husband's tax rate would be lower, and he would have unused annual exemption. Stamp duty would have to be checked regarding such a transfer as there is a mortgage.

BB.

Thanks a lot purdyoaten2. 

I guess I need a general financial advice to star with, as the prospect of paying so much tax may sway my decision regarding when to sell. 

[Deleted User]

BB. said:

Thanks a lot purdyoaten2. 

I guess I need a general financial advice to star with, as the prospect of paying so much tax may sway my decision regarding when to sell. 

There are many things to consider:
You could sell now, for example, and the private residence relief would increase to 74125 leaving ‘only’ 55875 chargeable. You would have an annual exemption to deduct of 12300 as opposed to 3000 leaving 43575 chargeable. (If the improvements all qualify this would be reduced by 13125). You need to weigh this up against two years less rental income and profit, movements in house prices etc.

jimmo

purdyoaten2 said:

BB. said:

Thanks for that. That’s very helpful albeit unlucky in my case. When I bought the property in 2011 I carried out a renovation throughout the property for about £30k . This was 10 years ago, will I be required to provide the invoices from back then? Other than improvement work, and buying / selling costs, is there anything else I can deduct? 

Alternative are you able to advise what type of paid professional can provide further help and how best to find someone good?

Many thanks 

If they were improvements they are certainly able to be claimed. Be careful though - this is not always straightforward.

https://www.accountancy.coop/downloads/helpsheet-LaP-Improve-or-Repair.html

In terms of professional help, I’m sure that jimmo won’t mind if I share that he is a specialist in this area.

That really should be was . Its a little over 16 years since I retired from HMRC as an Inspector of Taxes and whilst I like to think that I have retained a lot of what I knew I'm not so good at changes since 2006. I only pick up what I learn on here.

Now, in my day it really wasn't too unusual for taxpayers to have lost their receipts from years ago. In such cases I would require a description. My own approach was to ask for a description of the improvements and then seek the advice of the Valuation Office Agency. That was my approach back then and it worked for me but each individual compliance officer or whatever they are called these days is paid to make his or her own decisions on such matters and be prepared to justify them to a tribunal.
It would probably be good if the OP gave a description of the improvements on here. I will be happy to give my opinion unless you, Jeremy or someone else with more current experience beats me to it. 

BB.

Hi All, I have finally disposed of my property and currently dealing with CGT submission via chartered accountants firm. Would you still be willing to give me your opinion on the improvements made? The accountant says they  are all allowable improvements but I would sleep better if @jimmo, @Jeremy535897 or any other expert here could give me their opinion...  Thanks!

Jeremy535897

If you wish to list them, I can give my opinion. However, you are paying professionals to give you advice, and they have given the answer that suits you. If I agree with them, I'm not sure what you gain. If I don't, what would you actually do? Say some stranger on the internet disagrees with them? If they stand by their view, are you going to refuse to sign off the return (which is required within 60 days of completion)? If they get it wrong, and you owe extra tax, you seek redress from them for any loss as a result of them being wrong. You really might be best not asking, unless there is something they claim that offends common sense, and you don't understand their defence of it.