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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi This is a question about main residence relief and if we

Customer Question

Hi This is a question about main residence relief and if we have any capital gain tax to pay.

Property bought £312500 Sep 1999. Estimated sale date Sep 2013 £650,000.
Spent Approx £50,000 on improvements
Moved abroad with job May 2006. returned Aug 2008 to another job in another part of UK. Rented a house near job Aug 2008- June 2009. Main residence been let out for whole time Sep 2006 - date. Bought another house as main residence June 2009 - selling Sept 2013. Is there any capital gain to pay on properties or do reliefs and costs absorb it all? thanks
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

Can you confirm whether the property is owned jointly or not please.
Customer: replied 3 years ago.


owned jointly husband and wife


 

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I do some calculations.
Expert:  TonyTax replied 3 years ago.
Hi again.

If you sell the property for £650,000 in September 2013 having paid £312,500 for it in September 1999 and spent £50,000 improving it, you will make a gain of £287,500, £143,750 for each of you.

Of the total period of ownership, you will each be entitled to CGT exemptions for the following periods:

September 1999 to May 2006 Main residence relief 81 months.

June 2006 to July 2008 Main residence relief due to absence abroad for work purposes 26 months.

August 2008 to May 2009 Main residence relief due to absence in the UK for work purposes 10 months.

June 2009 to September 2010 Letting relief 16 months.

October 2010 to September 2013 Relief for the last 36 months of ownership or three years for any reason.

As you will see, the whole period of ownership of the property is covered by reliefs of one sort or another and you should have no Capital Gains Tax to pay.

You will only be entitled to relief for the period you worked abroad and in the UK too far from your home to live in it if it was your employer's decision to have you work in those places as opposed to your choosing to take a job in those places. I'm also assuming that you did not buy a property to live in whilst abroad. Take a look at the HMRC helpsheet HS283 and here (CG65013 to CG65068) for more information on main residence reliefs and CGT.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.


thanks for this. We were not moved abroad with an employer- my husband left a job and took on a new contract with another employer in China. The contract ended and he got another job back in UK but not near the main residence (no jobs) We did not buy a property whilst abroad - had rentals the contract work provided.

Expert:  TonyTax replied 3 years ago.

So, would it be fair to day that it was your husband's decision to take a new job in China? Did your husband work as an employee of the Chinese organisation as opposed to being self-employed?

Expert:  TonyTax replied 3 years ago.

Assuming that your answer to the first question in my previous post is yes, then there will be no relief for the period of absence abroad or the period where you were living far from your home as these were choices made by you and your husband as opposed to an existing employer effectively compelling him to work abroad or far from your home.

Instead, the tax reliefs will work out as follows for each of you:

You each have a gain of £143,750. You will be entitled to main residence relief for the period that you lived in the property and for the last 36 months of ownership. That accounts for £99,519 (£143,750 / 169 months x 117 months). That leaves £44,231 which is the gain for the period that the property was let (85 months) and the 3 months it was vacant before letting. As the property was both your main home and it was let, you are each entitled to letting relief which is the lesser of the following:

1 £40,000,

2 the gain for the period you lived in the property plus the last 36 months of ownership, £99,519 and

3 the gain for the period the property was let excluding the last 36 months of ownership, £41,679.

Letting relief of £40,000 will reduce the remaining gain to £4,231 and that will be covered by the annual CGT exemption of £10,900. You should have no CGT to pay.

The tax office may ask for proof of the improvement expenditure in the form of receipts and invoices. They may seek to disallow any expenditure that you cannot prove.

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