Yet another CGT question

[barchetta_boy]

I need some advice on CGT.

I have a flat that was purchased in 2007. I lived there until Jan 2009 and then let it out. I am selling it and hope to complete this month. Am I liable for full CGT or can I get any private residence relief?

I am a basic rate taxpayer. I have been married since June 2010 and my wife has no income.

Thanks.

[timbo999]

My understanding is that you get relief for any gains made whilst you lived there and for the last 18 months of ownership...

[Eric Mc]

Correct.

[Nick67]

Is it all in your name or have you transfered part to your wife to utilise her CGT allowance

[barchetta_boy]

It is all in my name. Could it and should it be transferred to my wife's name, or now that I have instructed solicitors re sale is it too late?

Many thanks.

[Eric Mc]

Having a property owned jointly is beneficial because -

a) both parties can make use of their annual Capital Gains Tax allowance. This is currently £11,000 per person. If the property is jointly owned, you will be able to deduct £22,000 from the gain before calculating the tax rather than just £11,000.

b) if in joint names, both parties will make the best use of their tax bands.
If you have (say) a salary of £50,000, you will already be a higher rate Income Tax payer. This means all of your share of the Capital Gain will be taxed at 28%.
If your Mrs is on a salary of (say) £20,000, then up to £25,000 of her share of the Capital Gain will be taxed at 18% and only the excess will be taxed at 28%.

[zcacogp]

Interesting thread, thanks BB.

Is the capital gain calculated per year, or is it all deemed to have been gained in the last year?

Also, is there additional relief to be gained if you move back into the flat?

Also (again!), do both members of a couple have to have the same 'residential address'? I am in a similar situation and my wife and I both live in the same house, although we jointly own another flat that we lived in from 2000-2005, and have rented out since. How else is it possible to reduce the CGT cost when we come to sell, and are there things we should be doing now to save money in the future?


Oli.

[Alpinestars]

You should be entitled to letting relief as well which has not been mentioned. Broadly to a max of £40k. If you set out the gain you've made I'm sure someone will work out the taxable gain for you.

[barchetta_boy]

Thanks all. Gains are as follows:

Received: £540,000
Cost of property: £312,000
Allowable costs (stamp duty, improvements, agents/sols fees): £36,310

Taxable gain: £191,690

Bought April 2007
Months as primary residence: 24
Months let out: 66

Thanks again for all help.

[Alpinestars]

Looks like Approx 62k would be your taxable gain (before your annual exemption).

[Nick67]

Alpinestars said:

You should be entitled to letting relief as well which has not been mentioned. Broadly to a max of £40k. If you set out the gain you've made I'm sure someone will work out the taxable gain for you.

Tax relief if you let out your home
If you have let part or all of your home, when you sell it, a proportion of any gain will relate to the letting and could be taxable.

However, provided the home genuinely has been your main home at some time, you can claim tax relief for the time it was your main residence, plus the last 18 months of ownership.

You may also be able to reduce the capital gains tax due by claiming letting relief. This deduction will be the lower of the gain related to the letting, the amount of private residence relief you are getting or £40,000. It's important to note that you can't claim private residence relief and letting relief for the same period, so if you are letting the property out when you come to sell, the last 18 months qualify for PRR rather than letting relief.

See HMRC helpsheet HS283 Private residence relief available from the HMRC website.

Letting example
If you own a property for 20 years (240 months), live in it as your main residence for the first 12 years (144 months), use it as a second home for the next four (48 months), then rent it out for the final 4 (48 months), you can claim both private residence relief (PRR) and letting relief on the gain you make when you come to sell.

Assume the profit you make on the sale is £100,000. The amount of PRR you can claim is 144 months plus 18 months for the final period of ownership. This is a total of 162 months, out of the 240 months total- 0.675%, which means that £67,500 of the £100,000 gain (£100,000 x 67.5%) is tax-free.

The remaining £32,500 gain is potentially taxable, but you can set letting relief for 30 months against it (48 months letting period, less 18 months PRR). The gain attributable to the letting period is 30/240 = 12.5% x £100,000 = £12,500.

The amount of letting relief you receive is the lower of the attributable gain (£12,500); the PRR claimed (£67,500); and £40,000. This means that the taxable gain of £32,500 is reduced by £12,500 to £20,000. If this is further reduced by your £11,000 CGT allowance, tax is only payable on the remaining £9,000 (at 18% or 28%, depending on your total income for the year).

[Nick67]

Based on the above

PRR (24+18)/90*191600 £89413

Gain reduced to £102,186

Letting relief (66-18)/90*191600 £102,186

As £40,000 is the lower figure this is what would be used

Therefore overall gain would be

102186-40000

Total Gain £62186 less the CGT allowance of £11k

So £51186


I'm sure someone will confirm if correct/incorrect.

Edited by Nick67 on Saturday 4th October 13:47

[Alpinestars]

You might want to review your arithmetic .

[Nick67]

Alpinestars said:

You might want to review your arithmetic .

As I said someone would confirm

[Alpinestars]

You ended up taking 89 as the gain rather than 102. So I agree with you subject to that error. Approx 62 less any allowances.

[sumo69]

Nick67 said:

Based on the above

PRR (24+18)/90*191600 £89413

Gain reduced to £102,186

Letting relief (66-18)/90*191600 £102,186

As £40,000 is the lower figure this is what would be used

Therefore overall gain would be

102186-40000

Total Gain £62186 less the CGT allowance of £11k

So £51186


I'm sure someone will confirm if correct/incorrect.

Edited by Nick67 on Saturday 4th October 13:47

Looks ok to me, though I assume this has been amended from that shown originally.

David