Calculating Capital Gains Tax when a ‘Right to Buy’ flat is sold.

n00bby

Does anyone know how the Right to Buy discount features in the calculation of how much Capital Gains Tax would be due if the flat were to be sold for greater than the purchase price?

Eg. My husband bought his studio flat off the council 5 years ago for a purchase price of £200,000 but with a 60% discount so a net price after discount of £80,000. He has lived in it as his sole home for 5 years, then recently sold it for £240,000.  Is the 'capital gain' for CGT purposes £40,000 (i.e. £240,000 minus purchase price £200,000) or is the capital gain £160,000 (i.e. £240,000 minus net purchase price after discount £80,000)?  

I realise that CTB normally wouldn’t apply to someone’s main residence, but on that read on (if you can bear it).

Second question: In the case above, would the person just get one year’s Annual CGT Allowance to offset against the tax due, or would there be an annual allowance for each year of the 5 years he’s been living there as his only home?

Third question: Regarding the main residence rule, by the time we married 2 years ago, my husband and I each owned and lived in our own studio flats. Our aim is to sell them both and buy somewhere together. If we had not married, I believe that neither of us would have to pay CGT on our respective flats as they are each of our respective sole homes; but as we are married I believe only one main residence exemption can apply and we must nominate one property to be taxed. I’ll be happy if you tell me I’ve got that wrong!  

mta999

These are my views on your questions - others may correct me

Capital gains tax is due on a difference between the sales price and the purchase price so if you paid 80,000 pounds for it and if 80,000 pounds was the figure on the contract and you handed over 80,000 pounds then that is the starting price

You are allowed to deduct buying and selling costs from this gain

This gain will be reduced proportionately depending on how long he had it as his main residence. So if he owned the flat for say 8 years and lived there for 5 years as his main residence then 3/5 of the gain will be liable to CGT

I believe there is an additional nine months you can add

Finally you are allowed the cgt allowance currently £3k  in the year you sell and I believe you can also claim the previous year's but not sure.

mybestattempt

n00bby said:

Does anyone know how the Right to Buy discount features in the calculation of how much Capital Gains Tax would be due if the flat were to be sold for greater than the purchase price?

Eg. My husband bought his studio flat off the council 5 years ago for a purchase price of £200,000 but with a 60% discount so a net price after discount of £80,000. He has lived in it as his sole home for 5 years, then recently sold it for £240,000.  Is the 'capital gain' for CGT purposes £40,000 (i.e. £240,000 minus purchase price £200,000) or is the capital gain £160,000 (i.e. £240,000 minus net purchase price after discount £80,000)?  

I realise that CTB normally wouldn’t apply to someone’s main residence, but on that read on (if you can bear it).

Second question: In the case above, would the person just get one year’s Annual CGT Allowance to offset against the tax due, or would there be an annual allowance for each year of the 5 years he’s been living there as his only home?

Third question: Regarding the main residence rule, by the time we married 2 years ago, my husband and I each owned and lived in our own studio flats. Our aim is to sell them both and buy somewhere together. If we had not married, I believe that neither of us would have to pay CGT on our respective flats as they are each of our respective sole homes; but as we are married I believe only one main residence exemption can apply and we must nominate one property to be taxed. I’ll be happy if you tell me I’ve got that wrong!  

mta999 said:

These are my views on your questions - others may correct me

Capital gains tax is due on a difference between the sales price and the purchase price so if you paid 80,000 pounds for it and if 80,000 pounds was the figure on the contract and you handed over 80,000 pounds then that is the starting price

You are allowed to deduct buying and selling costs from this gain

This gain will be reduced proportionately depending on how long he had it as his main residence. So if he owned the flat for say 8 years and lived there for 5 years as his main residence then 3/5 of the gain will be liable to CGT

I believe there is an additional nine months you can add

Finally you are allowed the cgt allowance currently £3k  in the year you sell and I believe you can also claim the previous year's but not sure.

The actual cost of £80k is used to calculate the capital gain.

If the flat was your husband's main residence throughout his 5 years of ownership the capital gain is wholly covered by private residence relief.

There is only one capital gains exemption in the tax year of the disposal, (unused exemptions for earlier years are not available to be carried forward).

A married couple can only have one main residence:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64525

silvercar

You need to nominate one property to be your main residence. You have 2 years from the date of marriage to do this. If you don’t make the nomination it is based on the facts. Sounds like you may have missed the nomination opportunity, so look at the facts and see which was your main residence. If it can’t be his, then he would be exempt for the time it was his PPR and the last 9 months of ownership, so 7 years of ownership with exemption for 5.75 of those years. You also deduct buying and selling costs and he would have a £3k CGT allowance.