capital gains tax on a flat + a lease extension

[pjfamilyguy1]

asking you guys for some advice, I'll keep to the facts as I know them.

My wife bought her own flat (in her name only) some 10/11 yrs ago and lived in it for 7 years, then she rented it out for 3/4 yrs and she is now looking to sell.

The monthly rental costs just about covered the monthly mortgage repayments (repayment mortgage).

3/4 yrs ago the flat was valued at 100k but it had a 64yr lease and so we rented it as there were no buyers or sensible offers.

Now the property has a 61 yr lease and still valued at 100k

However we might extend the lease at point of sale so we could sell for 145k (for arguments sake) as we don't have a valuation of the property with a lease 3/4 yrs ago. But we do have written valuations of the value without a lease 3/4yrs ago and now.

How does she stand with capital gains tax ?

[Eric Mc]

Capital gains tax is based on what you paid for something versus what you get when you sell it. Valuations only come into the equation if the disposal of the asset was for no apparent consideration or a consideration other than cash that is not obvious from a value point of view.

[pjfamilyguy1]

Thanks Eric, someone else stated

if the property has increased in value from when it was first let out to the date of sale, the she would be liable for capital gains tax.

Not from the time she bought it but the time it was first rented out. Hence valuations are needed.

Does this sound correct to you/anyone ?

And How do you pay this tax at the time of sale or in a tax return or some other way ?

[Eric Mc]

No, it doesn't sound quite correct. However, the gain will be time apportioned between the time the house was the owner's main residence and its total period of ownership.

An example -

Gain on Disposal £100,000
Property owned for 10 years.
Property lived in by owner for 4 years.

4/10 of the gain will not be taxed. In fact, you get an addition 18 months as a "freebie" so 5.5/10 of the gain won't be taxable - leaving 4.5 taxable i.e. £45,000.

There will also be additional Residential Lettings Relief, which would further reduce the taxable gain.

[konark]

With the figures you have given you will not pay CGT because 7/10 of the gain is taken care of by when you lived there, and the rest will get letting relief.

How do you extend the lease to magically make your flat worth 45% more?, surely you will have to pay handsomely for the privelige. So from the £145 grand sale price you can deduct this amount, selling fees, buying fees, any improvements you have made, but not just maintenance.

[Du1point8]

konark said:

With the figures you have given you will not pay CGT because 7/10 of the gain is taken care of by when you lived there, and the rest will get letting relief.

How do you extend the lease to magically make your flat worth 45% more?, surely you will have to pay handsomely for the privelige. So from the £145 grand sale price you can deduct this amount, selling fees, buying fees, any improvements you have made, but not just maintenance.

In london I have seen flats worth 4 million with a year left on the lease being sold for £350k, if the new owner wishes to extend the lease and pay £2+ million, then they make a tidy profit.

Once its below 70 its virtually un-mortgagable and is worth a lot less to sell.

[Harry Flashman]

How does CGT work if you buy a whole property, split it, and then sell one of the smaller properties after a few years?

[Eric Mc]

Part disposals of assets are catered for in the legislation. Effectively, if you sell off half an asset, you allocate half the original cost against the proceeds of the sale.