Capital Gains tax on rental property

Boleyn19

Hi, I hope you can help me with my understanding so far on CGT liability on the sale of our rental home which we hope to do next year.

I bought the house in 1989 and lived in it as my main residence. From c1993 (I think) I rented out the spare room to theatre people as I stayed some nights, or went on holiday, with my boyfriend and didn't want the house empty but it was still my main residence. 

We married in 1997 and I moved into his house. The house was then put in joint names later maybe 1998, with equal ownership. Since then the whole house has been rented.

My understanding is that I deduct the period it was my sole residence from the gain ie 8 years. Then deduct the original price I paid. Then selling costs eg estate agents, solicitor fees. Then we split the gain 50/50 and calculate the CGT according to our tax bands and pay within 60 days. Is this correct?

Other questions:

Does the time I lived in the house as a main residence have to be calculated by the day/month or just the year.

Can you deduct costs associated with making the property sell eg deep clean, garden tidy etc

What proof do you have to supply to HMRC eg marriage certificate, date we made the house joint, sale price and invoices for associated allowable costs.

Thanks in advance.

Jeremy535897

You should read  the following helpsheet to check whether your periods of absence while the property was your main residence qualify under the three year rule:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2025
I assume that rent a room relief applied to the lodgers. That letting out is not going to affect the taxable gain.
Presumably neither of you ever made an election to treat either of the houses as your main residence at any time?
The transfer of half of your house to your husband post marriage was on a no gain, no loss basis.
You can do the calculations to the nearest month.
Only improvements reflected in the value of the property can be deducted from the gain. Deep cleaning and garden tidying might have been deductible from the rent in certain circumstances, but not from the gain.
You need provide no supporting documentation to HMRC, but keep it safe in case you are asked to provide any proof. I have never known HMRC ask to see a marriage certificate, but I suppose they could.
Turning now to the gain, as the transfer from you to your husband of a half interest in your property was before 2020, and it was not your husband's main residence at any time, unfortunately the main residence relief exemption will only apply to part of your half of the gain, not his (the law changed for transfers after 5 April 2020).
The gain will be calculated as sale proceeds, less selling costs (legal and estate agent), less original cost including acquisition costs, assuming no improvements. You can apply the appropriate main residence relief to your half of the gain.

Jeremy535897

In terms of online returns and rates applicable, see:
https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020
https://www.gov.uk/capital-gains-tax/rates
It may be better if your husband transfers his half of the property back to you, as you should then get the benefit of the main residence relief against the whole gain rather than half of it, but then you may pay a higher rate of tax, and only one annual exemption could apply. Some care needs to be taken about timing, and it would be best to do this prior to any listing of the property for sale, as HMRC could seek to treat the transfer as ineffective. If the property is still let, it would also impact on the income tax situation.
As this is a somewhat complex case, you would be best seeking proper advice from an accountant rather than relying on answers on this forum, as the advice is provided without any redress if it is wrong.

Boleyn19

Jeremy535897 said:

In terms of online returns and rates applicable, see:
https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020
https://www.gov.uk/capital-gains-tax/rates
It may be better if your husband transfers his half of the property back to you, as you should then get the benefit of the main residence relief against the whole gain rather than half of it, but then you may pay a higher rate of tax, and only one annual exemption could apply. Some care needs to be taken about timing, and it would be best to do this prior to any listing of the property for sale, as HMRC could seek to treat the transfer as ineffective. If the property is still let, it would also impact on the income tax situation.
As this is a somewhat complex case, you would be best seeking proper advice from an accountant rather than relying on answers on this forum, as the advice is provided without any redress if it is wrong.

Thanks Jeremy for your detailed response. We will certainly get proper advice near the time. Would that fee be allowable against CGT (I guess not)? At the moment I am just getting an idea of what's involved.

Would my husband's gain be based on half the value at the time when the share was transferred, but not sold, to him (1998) - or half the gain from my original purchase price? 

We've never elected either house as main residence.

Would a new bathroom or kitchen be an allowable cost?

Jeremy535897

Boleyn19 said:

Jeremy535897 said:

In terms of online returns and rates applicable, see:
https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020
https://www.gov.uk/capital-gains-tax/rates
It may be better if your husband transfers his half of the property back to you, as you should then get the benefit of the main residence relief against the whole gain rather than half of it, but then you may pay a higher rate of tax, and only one annual exemption could apply. Some care needs to be taken about timing, and it would be best to do this prior to any listing of the property for sale, as HMRC could seek to treat the transfer as ineffective. If the property is still let, it would also impact on the income tax situation.
As this is a somewhat complex case, you would be best seeking proper advice from an accountant rather than relying on answers on this forum, as the advice is provided without any redress if it is wrong.

Thanks Jeremy for your detailed response. We will certainly get proper advice near the time. Would that fee be allowable against CGT (I guess not)? At the moment I am just getting an idea of what's involved.

Would my husband's gain be based on half the value at the time when the share was transferred, but not sold, to him (1998) - or half the gain from my original purchase price? 

We've never elected either house as main residence.

Would a new bathroom or kitchen be an allowable cost?

Fees for capital gains tax advice are not deductible. Certain selling fees that might include accountants' costs are, but only in respect of valuations that you don't need, because the base cost for your husband is half what your base cost is, not the value at the date of transfer.
Typically a new bathroom or kitchen are viewed as replacements and not deductible, unless there is a significant element of improvement. See:
https://smh.group/repairs-vs-capital-improvements-what-counts-for-capital-gains-tax-when-selling-a-residential-property/

Boleyn19

Jeremy535897 said:

Boleyn19 said:

Jeremy535897 said:

In terms of online returns and rates applicable, see:
https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020
https://www.gov.uk/capital-gains-tax/rates
It may be better if your husband transfers his half of the property back to you, as you should then get the benefit of the main residence relief against the whole gain rather than half of it, but then you may pay a higher rate of tax, and only one annual exemption could apply. Some care needs to be taken about timing, and it would be best to do this prior to any listing of the property for sale, as HMRC could seek to treat the transfer as ineffective. If the property is still let, it would also impact on the income tax situation.
As this is a somewhat complex case, you would be best seeking proper advice from an accountant rather than relying on answers on this forum, as the advice is provided without any redress if it is wrong.

Thanks Jeremy for your detailed response. We will certainly get proper advice near the time. Would that fee be allowable against CGT (I guess not)? At the moment I am just getting an idea of what's involved.

Would my husband's gain be based on half the value at the time when the share was transferred, but not sold, to him (1998) - or half the gain from my original purchase price? 

We've never elected either house as main residence.

Would a new bathroom or kitchen be an allowable cost?

Fees for capital gains tax advice are not deductible. Certain selling fees that might include accountants' costs are, but only in respect of valuations that you don't need, because the base cost for your husband is half what your base cost is, not the value at the date of transfer.
Typically a new bathroom or kitchen are viewed as replacements and not deductible, unless there is a significant element of improvement. See:
https://smh.group/repairs-vs-capital-improvements-what-counts-for-capital-gains-tax-when-selling-a-residential-property/

Thanks - that was what I thought but always worth asking.