Capital Gains Tax - a bit confusing
Discussion
I'm looking at selling a property I have as a BTL
Bought it in the summer of 2002 for £107k.
For the sake of argument, this was my only property (bought on a residential mortgage with the intent to live in it in the future, but had housing provided through work elsewhere). We had authority from the bank to let the property and did so for the next few years.
By 2011 we'd had a couple of kids and decided that the house we'd bought with the intent to reside in was going to be too small. We'd paid the mortgage off some years previous but remortgaged it in order to raise some capital to buy a bigger place in the next village. During this remortgaging process the little house was valued at £150k.
We bought the bigger place on a residential mortgage. The little house was on an interest only BTL mortgage now.
Due to the recent tax amendments, the little BTL isn't going to return a great amount off the rent and I think the price has pretty much topped out (back up to 2007 levels or thereabouts), so I'm going to sell it. Agents have valued it at a realistic £195k.
Will my CGT initial calculation be based around the £107k - £195k increase?
Can I put forward a case to say that the property didn't become an 'investment' until 2011 when we bought the bigger house and put it on a BTL? That would then be based upon the increase between £150k - £195k, much more palatable.
I think it will be the former, but common sense says it should be the latter.
Anyone got a more qualified opinion?
Bought it in the summer of 2002 for £107k.
For the sake of argument, this was my only property (bought on a residential mortgage with the intent to live in it in the future, but had housing provided through work elsewhere). We had authority from the bank to let the property and did so for the next few years.
By 2011 we'd had a couple of kids and decided that the house we'd bought with the intent to reside in was going to be too small. We'd paid the mortgage off some years previous but remortgaged it in order to raise some capital to buy a bigger place in the next village. During this remortgaging process the little house was valued at £150k.
We bought the bigger place on a residential mortgage. The little house was on an interest only BTL mortgage now.
Due to the recent tax amendments, the little BTL isn't going to return a great amount off the rent and I think the price has pretty much topped out (back up to 2007 levels or thereabouts), so I'm going to sell it. Agents have valued it at a realistic £195k.
Will my CGT initial calculation be based around the £107k - £195k increase?
Can I put forward a case to say that the property didn't become an 'investment' until 2011 when we bought the bigger house and put it on a BTL? That would then be based upon the increase between £150k - £195k, much more palatable.
I think it will be the former, but common sense says it should be the latter.
Anyone got a more qualified opinion?
https://www.gov.uk/tax-sell-home/private-residence...
You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:
you have one home and you’ve lived in it as your main home for all the time you’ve owned it - DOES NOT APPLY
you haven’t let part of it out - this doesn’t include having a single lodger - DOES NOT APPLY
[and some more]
So unfortunately, it is the larger of the two figures.
Did you live in it at all? If so some lettings relief may apply.
You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:
you have one home and you’ve lived in it as your main home for all the time you’ve owned it - DOES NOT APPLY
you haven’t let part of it out - this doesn’t include having a single lodger - DOES NOT APPLY
[and some more]
So unfortunately, it is the larger of the two figures.
Did you live in it at all? If so some lettings relief may apply.
Wasn't lived in but I got this from the 'Private Residence Relief' gov.uk info sheet:
"If you live in accommodation that is job-related and you also own a dwelling house that you intend to occupy as your only or main residence, the dwelling house you intend to occupy is treated as actually being occupied by you as a residence during the period in which you intend to occupy it, even if you never actually live there".
Clearly, until I bought the second 'bigger' house my intent was to live in the little house. When the family grew, that intent changed and I bought a bigger place.
"If you live in accommodation that is job-related and you also own a dwelling house that you intend to occupy as your only or main residence, the dwelling house you intend to occupy is treated as actually being occupied by you as a residence during the period in which you intend to occupy it, even if you never actually live there".
Clearly, until I bought the second 'bigger' house my intent was to live in the little house. When the family grew, that intent changed and I bought a bigger place.
It is jointly owned.
No significant enhancement expenditure - maybe £15k on new bathrooms and kitchens over the years, another £5k on upkeep and doors etc, but they've already gone across the books on self assessment.
Never lived in it per se, but have been listed on council tax and utilities during pvoid and refurb periods.
I'm higher rate tax bracket, the Mrs is a domestic goddess/stay at home mum...
No significant enhancement expenditure - maybe £15k on new bathrooms and kitchens over the years, another £5k on upkeep and doors etc, but they've already gone across the books on self assessment.
Never lived in it per se, but have been listed on council tax and utilities during pvoid and refurb periods.
I'm higher rate tax bracket, the Mrs is a domestic goddess/stay at home mum...
Edited by OneTwo on Wednesday 25th January 14:12
OneTwo said:
It is jointly owned.
No significant enhancement expenditure - maybe £15k on new bathrooms and kitchens over the years, another £5k on upkeep and doors etc, but they've already gone across the books on self assessment.
Never lived in it per se, but have been listed on council tax and utilities during pvoid and refurb periods.
I'm higher rate tax bracket, the Mrs is a domestic goddess/stay at home mum...
The period where it was INTENDED as your main residence AND T WAS NOT LET OUT - counts as being your Main Residence. So you will get Main Residence exemption for the period PLUS an additional 18 months.No significant enhancement expenditure - maybe £15k on new bathrooms and kitchens over the years, another £5k on upkeep and doors etc, but they've already gone across the books on self assessment.
Never lived in it per se, but have been listed on council tax and utilities during pvoid and refurb periods.
I'm higher rate tax bracket, the Mrs is a domestic goddess/stay at home mum...
Edited by OneTwo on Wednesday 25th January 14:12
If you already claimed the "enhancement" costs as general repairs etc against the rental income, then those costs can't be claimed again as an offset against the capital gain.
As the property is jointly owned, the gain is split 50/50 between the two owners. Each individual will be able to offset their Capital Gains Tax allowance of £11,000 against their share of the gain.
As you are already a higher rate taxpayer, all of your share of the gain will be taxed at 28%.
Your Mrs seems to be a non tax payer so her taxable share of the gain will be partly taxed at 18% and partly at 28%.
As the property was also let commercially, it should also be eligible for Residential Property Relief.
Per HMRC -
If you qualify for Private Residence Relief and have a chargeable gain, you may also qualify for Letting Relief. This means you’ll pay less or no tax.
Claim Letting Relief
You can get the lowest of the following:
the same amount you got in Private Residence Relief
£40,000
the same amount as the chargeable gain you made from letting your home
Letting Relief doesn’t cover any proportion of the chargeable gain you make while your home is empty.
Cheers Eric, helpful info.
Intent was always there, although having done a bit more reading on the subject - it would appear that when I bought the second property in 2011 I should have informed HMRC that I was nominating the new house as my primary residence. Don't think I did that, (certainly can't recall doing it, would the solicitors have included it in their activities?) could I do it retrospectively?
I think I just need to accept that my wife and I are going to get hammered by HMRC whichever way I look at it.
Still confused. I need a black belt CGT Ninja to ensure I don't get hammered, anybody recommend a NW based specialist. (Not sure this situation needs face to face activity so a more distant option may be viable).
How much would I expect to pay to someone with sufficient knowledge and apply all of the aggravating and mitigating financial factors and come up with the final figures?
How long do I get to resolve this once I've sold the house?
Intent was always there, although having done a bit more reading on the subject - it would appear that when I bought the second property in 2011 I should have informed HMRC that I was nominating the new house as my primary residence. Don't think I did that, (certainly can't recall doing it, would the solicitors have included it in their activities?) could I do it retrospectively?
I think I just need to accept that my wife and I are going to get hammered by HMRC whichever way I look at it.
Still confused. I need a black belt CGT Ninja to ensure I don't get hammered, anybody recommend a NW based specialist. (Not sure this situation needs face to face activity so a more distant option may be viable).
How much would I expect to pay to someone with sufficient knowledge and apply all of the aggravating and mitigating financial factors and come up with the final figures?
How long do I get to resolve this once I've sold the house?
Will be going on the market later in the spring and expect to find a buyer within a few weeks if I believe the manure from the agents.
We've certainly never struggled to find a tenant so the house certainly has the right qualities to attract punters, rightmove suggests that decent houses are under offer within 28 days.
Likely completion sometime during the summer of 17, most probably when I'm on holiday, because that's when these things tend to happen in my life!
We've certainly never struggled to find a tenant so the house certainly has the right qualities to attract punters, rightmove suggests that decent houses are under offer within 28 days.
Likely completion sometime during the summer of 17, most probably when I'm on holiday, because that's when these things tend to happen in my life!
If it is sold after 5 April 2017 (which sounds likely), then the sale will occur in tax year 2017/18.
You will need to return the gain on a 2017/18 self assessment tax return for both you and your wife each.
The tax arising will be payable by 31 January 2019.
There are changes coming in regards to the payment of Capital Gains Tax under the new Making Tax Digital regime. The plan is that Capital Gains Tax will need to be paid 30 days after the date of the sale. I'm not sure what tax year will be first affected by this but I think it might be gains made after 5 April 2018.
You will need to return the gain on a 2017/18 self assessment tax return for both you and your wife each.
The tax arising will be payable by 31 January 2019.
There are changes coming in regards to the payment of Capital Gains Tax under the new Making Tax Digital regime. The plan is that Capital Gains Tax will need to be paid 30 days after the date of the sale. I'm not sure what tax year will be first affected by this but I think it might be gains made after 5 April 2018.
Edited by Eric Mc on Wednesday 25th January 18:05
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