Property tax help plus election for main residence

b21playa

Hi all

A family member needs some help. They bought a house back in 2006 to repair to move in, hoping it would have been done in a year but its been 2years and they need another 6months (due to financial problems, housig needing more work done and builder problems)

anyway I know they have to elect for which will be their main residence (which will be the new house once done) but they havet moved in yet.

Anyne know which should be chosen?

Also now they have 2 houses, are the liable for capital gains at all on either of them?

They need some straight up advice, they have had all sort of problems and I'm trying to help

Thanks

takoo

Hi

If a capital gains tax liability on the more recently bought house should arise on disposal they will compute the gain on the following lines:

Price fetched
Less estate agent's fees and costs
solicitor's fees and costs
expenditure on improvements (enhancement)
expenditure on repairs (to extent the need was there at the time of purchase) (this one may be questioned)
stamp duty at time of purchase
Equals Gain

They should gather all invoices and receipts etc. so as to substantiate the above (if need be).

Unfortunately I believe I am correct in saying that any work 'costs' done by DIY will only cover cost of materials not notional wages for time spent on DIY (represents a 100% income tax on DIY time(maybe). (One of my hobby horses.)

Good luck

Takoo

CLAPTON

takoo wrote: »

Hi

If a capital gains tax liability on the more recently bought house should arise on disposal they will compute the gain on the following lines:

Price fetched
Less estate agent's fees and costs
solicitor's fees and costs
expenditure on improvements (enhancement)
expenditure on repairs (to extent the need was there at the time of purchase) (this one may be questioned)
stamp duty at time of purchase
Equals Gain

They should gather all invoices and receipts etc. so as to substantiate the above (if need be).

Unfortunately I believe I am correct in saying that any work 'costs' done by DIY will only cover cost of materials not notional wages for time spent on DIY (represents a 100% income tax on DIY time(maybe). (One of my hobby horses.)

Good luck

Takoo

I know you can't but if you could 'charge ' for your DIY time and so save 18% CGT then you would have to declare the charge for your time as income and be taxed at 20%... surprised the HMRC dont allow this.

b21playa

what about if they move in now (within 2years) are they liable for CGT?

do they have to contact HMRC to let them know?

CLAPTON

if they move in to the second a house and sell the first?

the first house will be CGT free as it was their PPR as long as they sell within three years

the other house will now become their PPR.

when they sell it they will be entitled to the exemption for the period it was their PPR plus three years so no CGT will be payable.

b21playa

jimmo wrote: »

In your original post you said “but its been 2 years and they need another 6 months”. Now you are asking “what if they move in now (within 2years)”? Can they or can‘t they move in within 2 years of purchase?
One year is normally fine, 2 years are a bit iffy but can be achieved. Even a day more than 2 years and the answer is a most definite No.
http://www.hmrc.gov.uk/manuals/cg4manual/cg65009.htm
Perhaps you need to put this into context.
Just as an example, if they move in 3 years after purchase live, there for 10 years and then sell then 10/13 of their gain will be exempt and 3/13 of their gain will be chargeable. Who knows what that will be?
If their intention is to move into the new property and make it their home for a long time then I, personally would not be too concerned about the potential Capital Gains Tax. The longer they live there, the less the potential chargeable gain.
However, if this is a plan to make a killing on the property market I really think it is fraught with dangers. They really need to sit down with a professional advisor.
They do not have to contact HMRC at this time but they really need to keep good records.

It will not be sold, but kept as there new family home.

So they dont need to make an election and no need to contact hmrc?

Malcmandy

House for £15,500 in 1977. Main and only residence.Jointly owned.
1977 -80 Renovation costs CG approved c.£10,000
1982 Estimated value £35,000
1985 New garage built £2,000
Sept 1992 Purchase of attached garage/store from neighbour £15,000.
Renovation to attached annexe CG approved £12,000
1995 -96 Extensions CG approved £31,00
Sept 2001 Sale of house as a whole £200,000 +fees.
Mortgage of £100,000 taken out in 1999 and repaid on sale.

Dec 1988. 2nd house purchased and nominated as Main Residence until sold at end of 1993. 1st house then reverted to main residence.

Would anybody be kind enough to number crunch the figures including index and taper relief for the CG liability please ?

Thanx.

stratty

If you sold the property in September 2001 and have not yet declared this and are concerned that you may have potential exposure to CGT I suggest getting some professional tax advice.

Malcmandy

It has been declared, but I am not sure on the figures ie index relief and taper relief etc. so would appreciate a MSE number crunch.

stratty

Malcmandy wrote: »

It has been declared, but I am not sure on the figures ie index relief and taper relief etc. so would appreciate a MSE number crunch.

Perhaps I am misunderstanding you but surely if you have already declared the disposal then the original calculation already includes indexation allowance and taper relief where appropriate?

Malcmandy

Stratty, I really just want a maths genius to help me out with the liability amount.The whys and wherefore's aren't part of the remit, but thanx for your concern.