CGT calculation

phil_the

I am self-employed basic rate tax payer. I need to pay capital gains tax after selling a house that I used to live in, but has also been rented out for a number of years. The calculator on the gov.uk website is pretty useless. It does all the relatively simple stuff for you, but when you get to the PRR section (which is the more complicated calculation) you have to work it out yourself and just type the value in.
Would someone be able to check this calculation for me?
I'd be hugely grateful. Thanks in advance.

buying costs                     308.92                solicitor fees

purchase price            39,500.00

Improvements:                                        

 new windows               3,700.00                        

 new bathroom              1,148.20

                                          --------                        

                                      4,848.20                        

Sale price                  172,000.00                        

selling costs                   2,883.00        solicitor + estate agent

purchase date             31/01/1992                        

Selling date                 21/11/2024                        

owned for                    393 mths           32.8 yrs

- 9 months free            21/02/2024                        

                                    384 mths          32.0 yrs

First rental date            01/10/2006                        

last rental date             31/05/2024                        

rented for                     211 mths          17.6 yrs

last effective date         21/02/2024                        

effective rental period   208 mths        17.3 yrs

time as main residence 176 mths        14.7 yrs

proportion                      45.8%

Gain                        124,459.00

PRR                          57,043.71

Exempt                       3,000.00

taxable gain              64,415.29

18% band                  37,700.00        6,786.00 

24% band                  26,715.29        6,411.67

                                                             ---------

tax due                                            13,197.67  ouch!!!

eskbanker

Have you had any formal advice about whether or not those improvements are eligible for CGT relief?  My understanding is that replacements often aren't....

What's your income tax liability on your self-employment profits?

Bookworm105

windows and bathroom are not allowable costs. They are "repairs", not capital improvements. The principle applied is BIM46925 - Specific deductions: repairs and renewals: what is a repair: changing technology - HMRC internal manual - GOV.UK

• the work is a repair and not an improvement if after the work is carried out, the asset can just do the same job as before;

you had windows, you now have newer windows. Same with the bath. Neither are capital.
(Depending on timing of the work you could have claimed the repair costs against rental profits?)


the actual tax payable calculation is wrong as I do not believe you have zero income! I doubt you have the full £37,700 at 18%. The point at which you move into the 24% band is based on your "total income" which means net taxable income for income tax purposes 


you owned the property for 393 months 
it was main residence for 176 months (Dec 92 to Oct 06)
if was let from then and never reoccupied by you as only/main residence
therefore PPR is (176 + final 9 months of ownership) = 185 months  / 393 months = 47.1% (rounded up)


Gain
172,000 - 39,500 - 308.92 - 2883 = 129,308.10
PRR 129,308.10 x 47.1% = 60,904.11
Net gain = 129,308.10 - 60,904.11 = 68,403.97
net taxable gain (assuming no other CGT this tax year) 68,403.97 - 3,000 = 65,403.97

in order to see how much of the 37,700 lower rate band is available you need to deduct from that amount the total of your income subject to income tax: self employed profit  + savings interest received + dividends received - personal allowance - savings allowance - dividends allowance = ?

if ? is less than 37,700 then deduct ? from that figure and that is how much remains of the basic rate band upon which you will pay 18% CGT. Everything else remaining from the net taxable gain will be at 24%

to get perspective, worst case scenario all at 24% x 65,403.97 = 15,696.95 tax payable 
In context 15,696.95 / 129,308.10 is an effective tax rate of 12% meaning you keep 88% of your "profit" from your ownership so in cash terms you will keep upwards of £110,000 after tax 

phil_the

Thanks for the replies. 
It looks like I have miscalculated the proportion of time as main residence. You've come up with a slightly higher % for PRR. so I'll look at that again and check the difference between your calculation and mine. 
Thanks for the link regarding improvements vs repairs. It does specifically mention upgrading from single to double-glazing which is what we did. Unhelpfully it states that at one time this would have been considered an improvement but is now considered a repair, but does not give a date.
My profits from self-employment and rental income varies from year to year but it is often quite close to the personal allowance so some years I pay income tax and sometimes don't.
Am I right that it goes on this year's income? If so, how can I know what that will be before the end of the financial year? The online calculator asks you for an 'expected' value. I thought this was just to work out if you are a high rate tax payer or not. I tried putting a couple of different values in, and it made no difference to the final figure which seemed to confirm that. I'll try this again.

Bookworm105

phil_the said:

Thanks for the replies. 
It looks like I have miscalculated the proportion of time as main residence. You've come up with a slightly higher % for PRR. so I'll look at that again and check the difference between your calculation and mine. 

you will find mine is correct
no idea why you think the final 9 months is a deduction from the PPR period. Provided that you were not simultaneously living in the property as main home then the final 9 months are an addition to the PPR period as a milksop to allow a grace period for people who have moved out but not yet completed on the sale.
As a further milksop HMRC does not care what happens in those 9 months, ie it can still be tenanted or left vacant (but not double counted if you continue in residence and therefore the "final 9" overlap with actual occupation). 176/384 is wrong whereas in your circumstances (176+9) / 384 is correct 

 read "period of ownership" section
HS283 Private Residence Relief (2024) - GOV.UK
and note comment here re double counting
Full PRR when selling old house shortly after buying new? - Community Forum - GOV.UK

your "effective dates" timeline is also irrelevant on a property you never re-occupied. PRR period is the period you occupied it as main/only home + final 9 months of ownership if not in residence at that time.  

there is no retrospective element to the "double glazing"/ You are taxed on current rules whereby that is not capital expenditure.

phil_the said:

I tried putting a couple of different values in, and it made no difference to the final figure which seemed to confirm that. I'll try this again.

then you have not read the figures correctly
12,000 as income gives a lower tax payable total than 15,000 as income

as i explained, the amount taxed at 24% depends upon how much of your lower rate band remains available to the gain 

the calculator asks for an expected income value because your actual net taxable income for the tax year cannot be known with certainty until the year end. That is why you are required to replicate the CGT declaration on your tax return so that if actual is different to estimate, your tax return will either charge you more CGT or give you a tax credit/refund

Cobbler_tone

Ref one of the comments above. I put a new kitchen and bathroom through on mine and it was audited and flowed through without any issues. They were a lot more than your numbers!

One thing of note, you can only add a maximum of two attachments, so best to compile your receipts on a spreadsheet.

Bookworm105

Cobbler_tone said:

Ref one of the comments above. I put a new kitchen and bathroom through on mine and it was audited and flowed through without any issues. They were a lot more than your numbers!

One thing of note, you can only add a maximum of two attachments, so best to compile your receipts on a spreadsheet.

does not alter the fact of what the rules say
"big" figures may indeed look more convincing as capital than the rather low costs the OP mentions 
also bear in mind, audit or not, HMRC are a business where the staff are under pressure to measure the cost of their time in challenging submissions against the amount of extra tax they could collect if their challenge is successful

Cobbler_tone

Bookworm105 said:

Cobbler_tone said:

Ref one of the comments above. I put a new kitchen and bathroom through on mine and it was audited and flowed through without any issues. They were a lot more than your numbers!

One thing of note, you can only add a maximum of two attachments, so best to compile your receipts on a spreadsheet.

does not alter the fact of what the rules say
"big" figures may indeed look more convincing as capital than the rather low costs the OP mentions 
also bear in mind, audit or not, HMRC are a business where the staff are under pressure to measure the cost of their time in challenging submissions against the amount of extra tax they could collect if their challenge is successful

Maybe that is the trick. Mine had a very complex and detailed spreadsheet, including over 40 receipts dating back to 2002, I keep records of everything. Perhaps someone at HMRC opened it and clicked through rather than chase a potential couple of grand in extra CGT?

uknick

Cobbler_tone said:

Ref one of the comments above. I put a new kitchen and bathroom through on mine and it was audited and flowed through without any issues. They were a lot more than your numbers!

One thing of note, you can only add a maximum of two attachments, so best to compile your receipts on a spreadsheet.

When asked, how did you justify the spend as being of a capital nature?  For example, if your original bathroom had an old tin bath with no running water connected and you then installed a modern bathroom that is an improvement and should be counted as capital.  But, if you just stripped out an old modern style bathroom and replaced it with like that shouldn't really be considered capital in nature.

Cobbler_tone

uknick said:

Cobbler_tone said:

Ref one of the comments above. I put a new kitchen and bathroom through on mine and it was audited and flowed through without any issues. They were a lot more than your numbers!

One thing of note, you can only add a maximum of two attachments, so best to compile your receipts on a spreadsheet.

When asked, how did you justify the spend as being of a capital nature?  For example, if your original bathroom had an old tin bath with no running water connected and you then installed a modern bathroom that is an improvement and should be counted as capital.  But, if you just stripped out an old modern style bathroom and replaced it with like that shouldn't really be considered capital in nature.

I didn’t go into that detail. I put a new bathroom and new kitchen in and attached all the evidence associated to them.
I didn’t put in anything for decorating between tenants, new carpets etc.
Like I said, they accepted it.

Bookworm105

Cobbler_tone said:

uknick said:

Cobbler_tone said:

Ref one of the comments above. I put a new kitchen and bathroom through on mine and it was audited and flowed through without any issues. They were a lot more than your numbers!

One thing of note, you can only add a maximum of two attachments, so best to compile your receipts on a spreadsheet.

When asked, how did you justify the spend as being of a capital nature?  For example, if your original bathroom had an old tin bath with no running water connected and you then installed a modern bathroom that is an improvement and should be counted as capital.  But, if you just stripped out an old modern style bathroom and replaced it with like that shouldn't really be considered capital in nature.

I didn’t go into that detail. I put a new bathroom and new kitchen in and attached all the evidence associated to them.
I didn’t put in anything for decorating between tenants, new carpets etc.
Like I said, they accepted it.

giving advice based on "this is what I got away with" may have a place on an advice forum, but does not make it the "right" answer

you might have saved more tax had you claimed against rental income as a repair ?