Capital Gains Tax

Notsureaboutanything

I recently bought a run down flat as a First Time Buyer. It needed work so I stayed in my rented flat until the work was done.  I bought for £170k and have just spent £30k doing it up. Someone has just offered my £240k for it.  I am not a property developer, and I have not slept one night in my flat. If I sell for £240k and remain in my rented flat do I pay CGT  any advice welcome and thank you   

BarelySentientAI

How long have you owned it for?

Bookworm105

well you have a choice
a) you put a case that you are a property developer and therefore you will be subject to income tax on your profits (which gives you greater scope over what costs you can claim, eg: mortgage costs). Yes there are people who only ever develop one property in their entire lives.
or
b) you will pay CGT (limits what costs you can claim, eg: no mortgage costs) as it has never been your only/main home in reality irrespective of the fact you do not own another property 

I know which I'd opt for to produce least taxable profit.

Mark_d

I don't think you have grounds to claim for private residence relief.  You can hardly call the flat your home given that you've not slept one night there

tacpot12

You will need to pay CGT (within 60 days of selling the property) because you have never lived in it as your home. 

You can deduct the costs you have spent doing it up, along with the costs of purchasing it and seliing it, from your gain to reduce your gain, so based on the figures above you would be have a gain of about £38k (assuming your buying and selling costs were about £1000 each). You also have a £3k CGT allowance, so will pay tax on a gain of about £35k. The tax rate depends on your whether you pay higher rate income tax or not. If not, the tax rate on property is 18% so you will have about £6.3k of tax to pay.

Bookworm105

BarelySentientAI said:

How long have you owned it for?

lots of CGT case law makes that a mostly inconclusive answer
- one case won with 9 days between purchase and sale
- one case lost with 18 months "occupation"

the principle is "permanence, degree of permanence, and expectation of continuity" 

Keep_pedalling

tacpot12 said:

You will need to pay CGT (within 60 days of selling the property) because you have never lived in it as your home. 

You can deduct the costs you have spent doing it up, along with the costs of purchasing it and seliing it, from your gain to reduce your gain, so based on the figures above you would be have a gain of about £38k (assuming your buying and selling costs were about £1000 each). You also have a £3k CGT allowance, so will pay tax on a gain of about £35k. The tax rate depends on your whether you pay higher rate income tax or not. If not, the tax rate on property is 18% so you will have about £6.3k of tax to pay.

Not all doing up costs can be deducted. 

Bookworm105

tacpot12 said:

The tax rate depends on your whether you pay higher rate income tax or not.

that is not how the calculation works, the correct formula is:
(gross income subject to income tax minus personal allowance) + (GCT net gain minus CGT allowance) = "total" income
if that "total" income figure is above the HR (income) tax threshold then you pay CGT at the higher CGT rate on the amount above the threshold 
Perfectly possible to be paying 28% CGT whilst only a basic rate income tax payer.

("net" CGT gain means: gross gain (ie sale price - original purchase cost) minus any allowable costs such as buying/selling and capital improvements)

sheramber

tacpot12 said:

You will need to pay CGT (within 60 days of selling the property) because you have never lived in it as your home. 

You can deduct the costs you have spent doing it up, along with the costs of purchasing it and seliing it, from your gain to reduce your gain, so based on the figures above you would be have a gain of about £38k (assuming your buying and selling costs were about £1000 each). You also have a £3k CGT allowance, so will pay tax on a gain of about £35k. The tax rate depends on your whether you pay higher rate income tax or not. If not, the tax rate on property is 18% so you will have about £6.3k of tax to pay.

It depends on waht these costs were for.

Only caiyal expenditure is allowable as a dedcution from CGT.

Replacing items  with a new item is not capital expenditure e.g replacing an old boiler.

Any structural work would be capital expenditure.

Notsureaboutanything

Thank you all for the various updates and advice - really helpful much appreciated.