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Private Residence Relief and Lettings Relief - CGT

edited 30 November -1 at 1:00AM in Cutting Tax
9 replies 1.5K views
stphnsteveystphnstevey Forumite
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edited 30 November -1 at 1:00AM in Cutting Tax
I would appreciate a sanity check on calculations below

I am also struggling with applying PRR and LR as a married couple and in what order to do the calculation. In particular, LR seems to be per individual and PRR per property, so does that mean that LR is effectively applied twice and PRR once to the combined gain?

Calculation is as follows. I split the gain after applying PRR, to then apply LR to each persons gain, this is the bit I am not sure is correct?

OWNED 4762 days
LIVED 334 days
LET 4293 days
Empty until sold 134 days

GAIN £ 35,000

COSTS
BUYING
Stamp Duty £ 1,600
Solicitors £ 685
Survey £ 290
SELLING
Solicitors £ 480
Estate Agent £ 2,106
TOTAL COSTS £ 5,161

NET GAIN £35000-£5161=£ 29,839

RELIEFS
PRIVATE RESIDENCE RELIEF
((334+18m)/4762) x £35000 = £ 6,423.77

Remaining Gain £29,839-£6,423.77=£ 24,362.16
Individual Gain £24,362.16 / 2 =£ 11,707.43

LETTING RELIEF
(4293/4762) x £35,000 =£ 31,552.97
Lowest of the 3 limits (PRR, LR, £40k) is PRR = £ 6,423.77
Remaining Gain £11,707.43-£6,423,77 = £ 5,283.66

Replies

  • stphnsteveystphnstevey Forumite
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    00ec25 wrote: »
    by implication from your post "you" are co-owners

    that means you each individually own a specific share of the property, be that 50/50 or (if tenants in common) a set fraction

    the calculation follows that fraction, you do it for each person individually since tax is per person not per couple or per property as each person may be in a different tax bracket to the other person
    you are also double counting the final 18 months in the LR calculation if the letting was up to the point it became empty for 134 days before sale

    see this example:
    https://forums.moneysavingexpert.com/showpost.php?p=73621764&postcount=2

    Thank you, I had seen the other thread and hoped you might reply as you seem knowledgeable in this area

    May I ask, if calculation worked out individually, do you split the gain at the start of the calculation?

    Also do you apply PRR based on the split gain?

    I had seen some example calculation where 18m was deducted from LR, but others where it wasn't, do you have reference to where it clearly states it should be?

    If 18m is deductible, is this from the empty period as well?

    Sorry, I have looked for examples to follow, but haven't found many for couples, hence my questioning order of calculation

    Thanks
  • edited 18 August 2019 at 11:22PM
    00ec2500ec25
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    edited 18 August 2019 at 11:22PM
    Thank you, I had seen the other thread and hoped you might reply as you seem knowledgeable in this area

    May I ask, if calculation worked out individually, do you split the gain at the start of the calculation?
    technically, yes, although mathematically it makes little difference if you do it at the end - before working the individual net gain after deducting annual exempt amount for each person as that may not be the same figure for each person if they had other gains in year

    Also do you apply PRR based on the split gain? see the example in linked post, can't be much clearer than that, if you'd followed it your calculation would not be wrong? As you have not given the shares I can't spoon feed the answer to you

    I had seen some example calculation where 18m was deducted from LR, but others where it wasn't, do you have reference to where it clearly states it should be? there are many references through HMRC - where have you been looking?

    If 18m is deductible, is this from the empty period as well? yes, that is the whole point of the rules hence they state:
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64985
    The exemption applies in any event
    Although the final period exemption is intended to apply where there are difficulties finding a buyer, it applies ‘in any event’, TCGA92/S 223 (2). So exemption will always be available for the final period if the dwelling house has been its owners only or main residence at some point in their period of ownership, regardless of the use of the dwelling house in that final period
    .


    Sorry, I have looked for examples to follow, but haven't found many for couples, hence my questioning order of calculation

    Thanks
    You split the gain if there is more one owner since by definition each person owns a share and the UK has had independent taxation for decades ever since women's lib. Why? Because each person could have a different tax bill if they are in different tax brackets, you may have higher "total income" than he does and so pay more than than him

    read this
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64738

    example 4 is the one you want to understand the restriction on the LR period
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64737
  • TaxgirlTaxgirl Forumite
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    If the house was purchased as joint asset from the onset, the gain is split 50/50 between husband and wife.

    You get two lots of letting relief and ppr. However if you weren’t married or the property wasn’t in joint names, then there are different rules. Also there are two lots of capital gains exemption. The gain after the exception is taxable either at 18% or 28%

    Also, when calculating the gain, deduct the cost of selling from proceeds and add the costs of costs incurred on purchase onto the purchase price.

    18m is the last 18m of ownership.

    As for your calc, I think it’s wrong as you’ve deducted the 100% of LR against the gain, if property is joint then you are only entitled to 50% of the LR. I make the gain to be £8.5K per person though I’ve not checked it out. Just doesn’t look right
  • stphnsteveystphnstevey Forumite
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    00ec25 wrote: »

    example 4 is the one you want to understand the restriction on the LR period
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64737

    Thank you for this!

    I presume if there is a vacant period at the end of the ownership, then you subtract this from the 18m in determining the amount of months to subtract from the LR? (Example 2 on the above link seems to suggest this as it has a 4yr vacant period at the end of the letting and doesn't seem to subtract any of the 18m from the LR)
  • edited 19 August 2019 at 7:38AM
    00ec2500ec25
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    edited 19 August 2019 at 7:38AM
    Taxgirl wrote: »
    If the house was purchased as joint asset from the onset, the gain is split 50/50 between husband and wife. you need to be careful with your choise of words when talking about tax.
    50/50 if purchased as JOINT TENANTS.
    You would be incorrect if they are married Tenants in Common with a Form 17 in place and an unequal split yet still have a "joint" asset


    You get two lots of letting relief and ppr. However if you weren’t married Co-owners still have to split according to beneficial ownership shares. The difference with unmarried co-owners is they are not forced to use a Form 17 before they can claim unequal shares.or the property wasn’t in joint names, then there are different rules. different how? The calculation is the calculation as shown in my earlier link it does not alter if sole ownership
    Also there are two lots of capital gains exemption. The gain after the exception is taxable either at 18% or 28% no, perfectly possible to pay tax at both 18% and 28%, it is not an either / or rate

    Also, when calculating the gain, deduct the cost of selling from proceeds and add the costs of costs incurred on purchase onto the purchase price.

    18m is the last 18m of ownership.

    As for your calc, I think it’s wrong as you’ve deducted the 100% of LR against the gain, if property is joint then you are only entitled to 50% of the LR. I make the gain to be £8.5K per person rubbish though I’ve not checked it out. Just doesn’t look right
    you are correct it doesn't look right, but if your feel does not immediately show you the outcome, then go back to basics

    start with a sense check
    - how big is the gain? 35k
    - how many owners = 2
    - what is the share per person? unconfirmed, let's guess 50/50 so 17.5 per person
    - how much is the AEA? = 11,700 (18/19) or 12,000(19/20)
    - is there a claim to PPR? yes
    - is there a claim to LR? yes
    - is there an empty period at the end (outside of valid letting voids) >18 months? No
    - is there an unoccupied period before final 18 months (excluding valid letting voids), ie a period of ownership when it was a "second" home? No

    and yet you still think the net taxable gain will >0?
  • edited 19 August 2019 at 7:30AM
    00ec2500ec25
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    edited 19 August 2019 at 7:30AM
    Thank you for this!

    I presume if there is a vacant period at the end of the ownership, then you subtract this from the 18m in determining the amount of months to subtract from the LR? (Example 2 on the above link seems to suggest this as it has a 4yr vacant period at the end of the letting and doesn't seem to subtract any of the 18m from the LR)
    owned 10 years
    lived first 5
    let next 4
    vacant last 1
    so the 18 months at the end spans the entire vacant period and 6 months of the LR

    PRR (5+1.5) = 6.5
    LR (10 - 6.5) = 3.5
    sense check 6.5 + 3.5 = 10 and LR period < 4

    owned 10 years
    let first 5
    lived in next 4
    vacant last 1
    so last 18 spans empty and lived in so you cannot add the full 18 as 6 months of it spans a PRR period anyway
    PRR is 5
    LR is 5
    sense check 5+5=10

    owned 11 years
    lived first 5
    let next 4
    vacant last 2

    PRR 5+1.5 =6.5
    LR = 4
    unrelieved period 0.5 (being last 2 - 18 months)
    gain 17.5
    PRR 10,341
    LR 6,364
    gross taxable gain 17,500 - 10,341 - 6,364 = 795
    deduct AEA .... net taxable gain £0
  • stphnsteveystphnstevey Forumite
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    00ec25 wrote: »
    owned 10 years
    lived first 5
    let next 4
    vacant last 1
    so the 18 months at the end spans the entire vacant period and 6 months of the LR

    PRR (5+1.5) = 6.5
    LR (10 - 6.5) = 3.5
    sense check 6.5 + 3.5 = 10 and LR period < 4

    owned 10 years
    let first 5
    lived in next 4
    vacant last 1
    so last 18 spans empty and lived in so you cannot add the full 18 as 6 months of it spans a PRR period anyway
    PRR is 5
    LR is 5
    sense check 5+5=10

    owned 11 years
    lived first 5
    let next 4
    vacant last 2

    PRR 5+1.5 =6.5
    LR = 4
    unrelieved period 0.5 (being last 2 - 18 months)
    gain 17.5
    PRR 10,341
    LR 6,364
    gross taxable gain 17,500 - 10,341 - 6,364 = 795
    deduct AEA .... net taxable gain £0

    Ok, so based on the advice given, amended calculation below. How does this sound?

    OWNED 4762 days
    LIVED 334 days
    LET 4293 days
    Empty until sold 134 days

    GAIN £ 35,000

    COSTS
    BUYING
    Stamp Duty £ 1,600
    Solicitors £ 685
    Survey £ 290
    SELLING
    Solicitors £ 480
    Estate Agent £ 2,106
    TOTAL COSTS £ 5,161

    NET GAIN £35000-£5161 =£ 29,839
    INDIVIDUAL GAIN =£ 14,919

    RELIEFS
    PRIVATE RESIDENCE RELIEF
    ((334+(18x30))/4762) x £14919 = £ 2,738.24

    Remaining Gain £14,919-£2,738.24 =£12,181.08

    LETTING RELIEF
    (4293-((18x30)-134)/4762) x £14,919 = £ 12,177.95
    Lowest of the 3 limits (PRR, LR, £40k) is PRR = £ 2,738.24
    Remaining Gain £12,181.08 -£2,738.24 = £ 9,442.84
  • edited 21 August 2019 at 7:27AM
    00ec2500ec25
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    edited 21 August 2019 at 7:27AM
    yes, although somewhat clunky layout of the maths

    bear in mind 365 x 18/12 = 547 is perfectly acceptable as legislation refers to months, not how to convert to days
    https://www.legislation.gov.uk/ukpga/1992/12/section/223

    Since 547 is > 134 (empty), the entire empty period falls within the deemed occupation 18 months so it can be ignored. All you need do is:
    PRR : 334 + 547 = 881
    LR: 4761 - 881 = 3,880

    sense check: the entire ownership period is covered by either PRR or LR, so 881 + 3880 = 4761 is fully accounting for the entire ownership, including the empty

    Also you seem to have allowed for the date calculator to +1 to give actual count of whole days, but you failed to adjust for that in the individual totals: 334 + 4,293 + 134 = 4,761, not 4,762. Something needs to change by 1, or your calculation should be:

    PRR 14,919 x 881/4761 = £2,761
    LR: £2,761 (lowest) or 14,919 x 3880/4761 = 12,158 or 40,000

    Net gain 14,919 - 2,761 - 2,761 = 9,397
    deduct whatever AEA is available to that person and the net taxable gain is likely to be £0 unless they already have other gains that have used up the AEA that year
  • edited 23 August 2019 at 2:59PM
    stphnsteveystphnstevey Forumite
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    edited 23 August 2019 at 2:59PM
    00ec25 wrote: »

    Net gain 14,919 - 2,761 - 2,761 = 9,397
    deduct whatever AEA is available to that person and the net taxable gain is likely to be £0 unless they already have other gains that have used up the AEA that year

    Thank you for that! Much appreciated

    We have the full £12k CG allowances, so I make it £2,604 remaining

    You have been extremely knowledgeable and we really appreciate your assistance

    May I trouble you to take a look at another 2nd property we own and are considering what to do about the loss of LR and reduction to 9m for PRR next April

    We are considering whether to sell from personal names this same tax year and sell to our Limited Company. That way benefiting from the reliefs prior to their reduction, but also moving to the company to avoid personal taxation on rental profits (although these rental profits are minimal)

    I believe the company would pay the higher SDLT, as it is effectively a cost to us as directors, I have included this in the calculation

    SECOND PROPERTY
    OWNED 5723 days
    LIVED 727 days
    LET 4996 days

    NET GAIN £ 45,470
    INDIVIDUAL GAIN £ 22,735



    RELIEFS <2020
    PRIVATE RESIDENCE RELIEF £ 5,063.07

    LETTING RELIEF £ 17,672.07
    Lowest of the 3 limits (PRR,LR,£40K) £ 5,063.07

    Remaining Gain £ 12,609.00

    Allowances £ 2,604.15 (remaining after 1st property sold)
    Remaining Gain £ 10,004.85
    Tax 18% £ 1,800.87

    STAMP DUTY
    3% £ 3,750
    5% £ 2,000
    TOTAL SDLT £ 5,750

    TOTAL £ 7,550.87



    RELIEFS >2020
    PRIVATE RESIDENCE RELIEF £ 3,975.57

    LETTING RELIEF £0
    Lowest of the 3 limits (PRR,LR,£40K) £0

    Remaining Gain £ 18,759.57

    Allowances £ 12,000.00 (new tax year)
    Remaining Gain £ 6,759.57
    Tax 18% £ 1,216.72

    SUMMARY
    RELIEFS <2020 £ 7,550.87
    RELIEFS >2020 £ 1,216.72

    For our specific circumstances, particularly with most of the CG allowances used up with the sale of the 1st property this year, it appears selling in subsequent years would result in less tax
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