Cap Gains query
Discussion
Hi guys,
I asked similar a while ago but circumstances changed.
I have a flat which was always a second property but now being sold. Will be approx 50k profit over last 3 years.
For the last 4 months I have been staying there & all bills etc in my name. I still have bills for my London house in my name as I am paying them.
My tax return wont go in until Jan 07 so if I dont pay cap gains (on the basis that it has been my main residence for the 4 months) will they chase me? And also if I sell my other house in say 2 years will I have any issues. My other house will surely be my main residence once I have sold the flat??
I'm confused & getting mixed messages from accountant. anyone know? cheers!
I asked similar a while ago but circumstances changed.
I have a flat which was always a second property but now being sold. Will be approx 50k profit over last 3 years.
For the last 4 months I have been staying there & all bills etc in my name. I still have bills for my London house in my name as I am paying them.
My tax return wont go in until Jan 07 so if I dont pay cap gains (on the basis that it has been my main residence for the 4 months) will they chase me? And also if I sell my other house in say 2 years will I have any issues. My other house will surely be my main residence once I have sold the flat??
I'm confused & getting mixed messages from accountant. anyone know? cheers!
) are here: There are no specific periods of time set out in the legislation as to how long you need to be in a property to claim that it is or was your main residence. I would suggest that 4 months is stretching it a bit and the Inland Revenue would argue fairly successfully in my opinion that you might be trying to pull a fast one.
Also, you could compromise the future sale of your "real" main residence and expose it to a CGT liability.
However, during the bulk of the time you owned the flat, did you own another residence which was your "main" residence or were you renting or abroad?
Also, you could compromise the future sale of your "real" main residence and expose it to a CGT liability.
However, during the bulk of the time you owned the flat, did you own another residence which was your "main" residence or were you renting or abroad?
Eric Mc said:
There are no specific periods of time set out in the legislation as to how long you need to be in a property to claim that it is or was your main residence. I would suggest that 4 months is stretching it a bit and the Inland Revenue would argue fairly successfully in my opinion that you might be trying to pull a fast one.
understood
Also, you could compromise the future sale of your "real" main residence and expose it to a CGT liability.
However, during the bulk of the time you owned the flat, did you own another residence which was your "main" residence or were you renting or abroad?
owned another house in london the whole time.
Out of interest Eric, this year, my accountant filled in my return & I sent it off with a cheque for my tax bill. 3 days before the end of Jan I got a letter from the IR asking for another £200 (accountant had missed something I think).
Assuming that in Jan 07 when I fill in tax return i dont mention the flat, am I likely to get a similar letter asking for the CGT (at which point I can argue that it was for a time my principle residence but now my London house is) or will they just fine me? any idea ?
Leaving tax returns until close to the January deadline is bad policy, in my opinion.
However, that aside, you can't live in two Principal Private Residences at the same time. However, if you have two (or more) residencies which you have used as PPRs at various times, you are entitled to make an election to chose which property you would like treated as your PPR. These elections must be made within certain time limits but they do allow a certain amount of flexibility and they can, sometimes, be made after a property has already been sold.
Why, you might ask? Well, if the gain on what you had assumed was your PPR is less than the gain on a property that had been but was no longer your PPR, you might want to elect to have the non PPR property changed to be your PPR and suffer the CGT on the lower gain on the other property. You might even find that the property you had assumed was your PPR might not have attracted CGT anyway because of the personal reliefs available and Indexation/Taper Relief. These factors would come into play if that property was jointly owned over a long period of time.
On the subject of tax payments - these are not normally enclosed with the tax return themselves. Tax returns go to your tax district for processing. Tax payments have to go to the Collector of Taxes at Bradford. I always insist on my clients making their own tax paymentsm directly - which you can do through the Bank Giro system or even on-line these days. So you don't have to trust your cheque to the postal system.
I wouldn't know why the Inland Revenue were asking you for an additional £200 in January. The amounts they ask for these days are not actual full tax liability amounts, but balances due at any given time taking into account full liabilities less Payments on Account already made less applications to reduce Payments on Account.
Whatever you decide regarding the disclosure of the property disposal on your 2005/06 tax return, you must remember that failure to disclose a relevant factor to the Inland Revenue is a criminal offence. In addition, your accountant is obliged by law (the Proceeds of Crime Act) to notify the National Criminal Intelligence Service of such ommissions.
You have been warned
>> Edited by Eric Mc on Wednesday 11th May 18:38
However, that aside, you can't live in two Principal Private Residences at the same time. However, if you have two (or more) residencies which you have used as PPRs at various times, you are entitled to make an election to chose which property you would like treated as your PPR. These elections must be made within certain time limits but they do allow a certain amount of flexibility and they can, sometimes, be made after a property has already been sold.
Why, you might ask? Well, if the gain on what you had assumed was your PPR is less than the gain on a property that had been but was no longer your PPR, you might want to elect to have the non PPR property changed to be your PPR and suffer the CGT on the lower gain on the other property. You might even find that the property you had assumed was your PPR might not have attracted CGT anyway because of the personal reliefs available and Indexation/Taper Relief. These factors would come into play if that property was jointly owned over a long period of time.
On the subject of tax payments - these are not normally enclosed with the tax return themselves. Tax returns go to your tax district for processing. Tax payments have to go to the Collector of Taxes at Bradford. I always insist on my clients making their own tax paymentsm directly - which you can do through the Bank Giro system or even on-line these days. So you don't have to trust your cheque to the postal system.
I wouldn't know why the Inland Revenue were asking you for an additional £200 in January. The amounts they ask for these days are not actual full tax liability amounts, but balances due at any given time taking into account full liabilities less Payments on Account already made less applications to reduce Payments on Account.
Whatever you decide regarding the disclosure of the property disposal on your 2005/06 tax return, you must remember that failure to disclose a relevant factor to the Inland Revenue is a criminal offence. In addition, your accountant is obliged by law (the Proceeds of Crime Act) to notify the National Criminal Intelligence Service of such ommissions.
You have been warned
>> Edited by Eric Mc on Wednesday 11th May 18:38
Personally I think you are screwed!
If some how you can show you lived in the property as your main residence at some point you will automatically qualify for the last three years of ownership as CGT free.
However don't worry if you can't it isn't as bad as you might think. You receive taper relief depending on how long you owned the property and if long enough you also receive index relief adjustment for the years before tax change.
You can also deduct purchase fees when you bought the property such as stamp duty and estate agent fees, solicitor costs, also when you sell, this will be several thousands on it's own.
If the property is also in yours and your wifes names you can deduct as much as 17K from the bill against your allowable annual tax free Capital gains, otherwise 8.5K. Put your wife's name on the deeds before you dispose of the property and you can still qualify for the full amount.
Any improvements that added value to the property can be deducted (so long as the are not repairs or general maintenance) such as a new roof, kitchen or double glazing.
Bottom line your CGT bill might not be as big as you might think and would be well worth paying just for the piece of mind. If however you don't file your tax return before the deadline you will face massive bill perhaps 40% of your whole gain.
Here is some links where you can get loads more info from the tax office plus forums that you can ask more questions from people that know a hell of allot more than me.
www.hmrc.gov.uk/helpsheets/ir283.pdf
www.hmrc.gov.uk/pdfs/1999_00/helpsheets/ir283.pdf
www.hmrc.gov.uk/pdfs/2001_02/capital_gains/ir279.pdf
www.hmrc.gov.uk/pdfs/2002_03/capital_gains/sa108_notes.pdf
www.hmrc.gov.uk/pdfs/2003_04/self_employment/ir223.pdf
www.hmrc.gov.uk/pdfs/ir87.htm
http://uk.biz.yahoo.com/tax/tips/cgt.html
www.landlordzone.co.uk/capital_gains_tax.htm
www.taxationweb.co.uk/forum/
If some how you can show you lived in the property as your main residence at some point you will automatically qualify for the last three years of ownership as CGT free.
However don't worry if you can't it isn't as bad as you might think. You receive taper relief depending on how long you owned the property and if long enough you also receive index relief adjustment for the years before tax change.
You can also deduct purchase fees when you bought the property such as stamp duty and estate agent fees, solicitor costs, also when you sell, this will be several thousands on it's own.
If the property is also in yours and your wifes names you can deduct as much as 17K from the bill against your allowable annual tax free Capital gains, otherwise 8.5K. Put your wife's name on the deeds before you dispose of the property and you can still qualify for the full amount.
Any improvements that added value to the property can be deducted (so long as the are not repairs or general maintenance) such as a new roof, kitchen or double glazing.
Bottom line your CGT bill might not be as big as you might think and would be well worth paying just for the piece of mind. If however you don't file your tax return before the deadline you will face massive bill perhaps 40% of your whole gain.
Here is some links where you can get loads more info from the tax office plus forums that you can ask more questions from people that know a hell of allot more than me.
www.hmrc.gov.uk/helpsheets/ir283.pdf
www.hmrc.gov.uk/pdfs/1999_00/helpsheets/ir283.pdf
www.hmrc.gov.uk/pdfs/2001_02/capital_gains/ir279.pdf
www.hmrc.gov.uk/pdfs/2002_03/capital_gains/sa108_notes.pdf
www.hmrc.gov.uk/pdfs/2003_04/self_employment/ir223.pdf
www.hmrc.gov.uk/pdfs/ir87.htm
http://uk.biz.yahoo.com/tax/tips/cgt.html
www.landlordzone.co.uk/capital_gains_tax.htm
www.taxationweb.co.uk/forum/
Gassing Station | The Pie & Piston Archive | Top of Page | What's New | My Stuff