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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I purchased a property in 1994 with my husband at a cost of

Customer Question

I purchased a property in 1994 with my husband at a cost of about £35,000 which required extensive refurbishment before we could move in. This work was completed in 1996.
Unfortunately our marriage broke down and as part of the settlement my ex husband passed on the ownership of the house to me.
I subsequently moved out of the property and let it out on a rental basis ever since.
In 2009 I sold a part of of the land associated with property to a developer to enable them to have right of access to another piece of land they had purchased at the back of my property.
I still rent the property to third parties today and report the income and expenditure through my tax returns.
My question is am i liable to pay tax either capital gains or income tax on the sale of the land given that it was associated with what was originally my residence.
Submitted: 4 years ago.
Category: Tax
Expert:  TonyTax replied 4 years ago.
Hi.

I realise that you have asked about the land but I will also let you know what the position is on the the house itself.

The gain from the sale of a property is deemed to have accrued evenly over the entire period of ownership. The gain for the period you lived in the property will be exempt from Capital Gains Tax as will the gain for the last 36 months of ownership. The remaining gain is for that part of the period the property was let which is not covered by the last 36 months of ownership and is taxable. However, as the property was both your main residence and it has been let, you are entitled to a deduction from the remaining gain called letting relief and this will be the lesser of the following:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 36 months of ownership of the property and

3 the letting period gain.

If there is still a taxable gain after the deduction of letting relief, you still have the annual CGT exemption of £10,900. Anything left after deducting the annual CGT exemption will be subject to CGT.

There are two rates of CGT, 18% and 28%. The rate or combination of rates you will pay will be dependent on the level of your income in the tax year of disposal of the property. Assuming you sell the property in the 2013/14 tax year, one of the following scenarios will apply:

1 If your income in 2013/14 including the taxable gain is £41,450 or less then all the taxable gain will be taxed at 18%.

2 If your income in 2013/14 excluding the taxable gain is more than £41,450 then all the taxable gain will be taxed at 28%.

3 If your income in 2013/14 excluding the taxable gain is less than £41,450 but more than £41,450 when you include the taxable gain then part of it will be taxed at 18% and part at 28%.

There are some complications in your case and these are as follows:

First, unless your ex-husband passed his share of the property to you by the end of the tax year in which you separated, then the cost to you of that share will be the open market value as opposed to half the cost of the property when you bought it, ie £17,500.

Second, If you sell a piece of land which is an integrated part of your property whilst it is your main home and the total plot size that you own including the land on which the house itself is built is no more than half a hectare, there will be no CGT to pay on the sale of part of the land as you will have sold part of your main residence and that gain will be exempt from CGT. As the property was not your main residence by the time you sold a piece of the land, some of the gain may have been liable for CGT in the tax year you sold it.

Since you appear not to have disclosed the land sale to the tax office, I'd recommend that you appoint an accountant or tax adviser to deal with the matter for you. The total cost of the property will need to be apportioned between what you still own and what was sold to work out the taxable gain if any. This will be based on the value of the whole property at the time of the land disposal and how it is split between what you still own and what was sold. You may need to have a land agent help you with the valuations. There will be some relief for the period you lived in the property and letting relief if the property was let at the time which it appears to have been.

Take a look at HS283 for some useful information on the main residence and Capital Gains Tax.

I hope this helps but let me know if you have nay further questions.

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