How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask TonyTax Your Own Question

TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15707
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
13905389
Type Your Tax Question Here...
TonyTax is online now

Hi there, I needed some capital gains tax-related help. I have

Customer Question

Hi there, I needed some capital gains tax-related help. I have sold my property which making an initial gain of £101,000 but this does not include improvements work done on the house since I bought it in 1991 and interest payments on the mortgage for that period of time.
I have not lived in the property since 1993, it has been let out to numerous private tenants. In that time I have been living on rent at another property. I therefore do not know what relief(s) I am entitled to i.e. Private Residence Relief or Letting Relief.
Any information you could provide me would be much appreciated.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

When you sell a property the gain is treated as having accrued evenly over the entire period of ownership. You can include the costs of improving the property (not the cost of general repairs) but you may be asked to prove the expenditure in the form of receipts and invoices by the tax office. You don't include interest payments in the calculation of a capital gain. You should have been claiming them against the rental income whilst the property was let.

The gain for the period the property was your main home will be exempt from CGT as will the gain for the last 36 months of ownership if you exchange contracts to sell it by 5 April 2014. Aftet that, you only add the gain for the last 18 months of ownership to the gain for the period that you lived in the property to arrive at the tax exempt gain. The remaining gain which will be for that part of the letting period which is not covered by the last 36 (18) months of ownership would be taxable but as the property was both your main home and it was let you will be entitled to letting relief which is the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 36 (18) months of ownership of the property and

3 that part of the letting period gain not covered by the last 36 months of ownership of the property.

Take a look at the HMRC helpsheet HS283 for more information on the main residence and CGT.

If you let me know the month in 1991 that you bought the property, the month in 1993 that you moved out, the month in 1993 it was first let ,the month and year it was sold and the cost of the improvements I will work out the taxable gain for you. Was the property owned solely by you or jointly?

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Tony,


 


Thank you for the information provided thus far.


 


The property was bought in September 1988 by my husband for £85,000 and was sold last week for £182,000. From this £182,000 there was £70,000 deducted for the mortgage, solicitor fees amounting to £2,000, estate agent fees of £4000 and freehold purchase at £5000. Therefore the cheque I received from the solicitors was for £101,000.


 


My husband owned the property solely but he passed away in January 1989 and I then gained ownership of the property in September 1991.


 


I moved out in October 1993 to live with family in London. This property was then either left vacant or occupied intermittently by friends until I began letting it out officially from April 2005.


 


As for the home improvements, I do not have any receipts for these but I do have evidence of a £25,000 home improvements loan that was taken out in 2001 which was spent on the property.


 


Is there any further information that you require?


 


Regards


 


Ravi

Expert:  TonyTax replied 2 years ago.

Thanks.

Do you know what the property was worth in January 1991 when you inherited it from your late husband? Was the property let at a commercial rate to your friends who stayed there? Which month and year was the property sold?

Customer: replied 2 years ago.

The property was worth approximately £90,000 at that point.


 


It was not let at a commercial rate, no rent was received at all from any friends.

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 2 years ago.

Thank you Tony.

Expert:  TonyTax replied 2 years ago.

Hi again.

When you sold the property, you made a gain of £56,000 (£182,000 - £90,000 - £2,000 - £4,000 - £5,000 - £25,000). The tax office may disallow some or all of any improvement expenditure that you cannot prove if they ask to see receipts and invoices. You owned the property for 276 months, of which you lived in it for 34, it was effectively vacant for 137 and it was let for 105.

The gain for the period the property was your main home is exempt from CGT as is the gain for the last 36 months of ownership. That accounts for £14,203 (£56,000 / 276 x 70). The remaining taxable gain of £41,797 is split between that part of the letting period gain which is not covered by the last 36 months of ownership, £14,000 (£56,000 / 276 x 69) and the period the property was vacant, £27,797 (£56,000 / 276 x 137).

As the property was both your main home and it was let you are entitled to letting relief which is the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 36 months of ownership of the property which is £14,203 and

3 the letting period gain of £14,000.

Letting relief of £14,000 will reduce the remaining taxable gain from £41,797 to £27,797. The annual CGT exemption of £10,900 will reduce that to £16,897 on which you will pay CGT.

If all the £25,000 improvements costs were disallowed, the main residence/36 months tax free gain would be £20,543, the letting period gain would be £20,250 and the vacant period gain would be £40,207. Letting relief of £20,250 would reduce the taxable gain from £60,457 to £40,207. The first £10,900 of that would be exempt which would leave you with a net taxable gain of £29,307.

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:

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%.

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%.

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%.

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

What Customers are Saying:

 
 
 
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
< Previous | Next >
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP
  • I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin
  • Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
 
 
 

Meet The Experts:

 
 
 
  • Sam

    Sam

    Accountant

    Satisfied Customers:

    6894
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
< Last | Next >
  • http://ww2.justanswer.com/uploads/TA/Tax Expert/2013-8-21_231010_sam.64x64.jpg Sam's Avatar

    Sam

    Accountant

    Satisfied Customers:

    6894
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
  • http://ww2.justanswer.com/uploads/BI/bigduckontax/2013-8-12_222058_1.64x64.jpg bigduckontax's Avatar

    bigduckontax

    Accountant

    Satisfied Customers:

    1772
    FCCA FCMA CGMA ACIS
  • http://ww2.justanswer.com/uploads/TA/TaxRobin/2013-8-28_16186_femalebusinessprofessionalbinderhand11038485.64x64.jpg TaxRobin's Avatar

    TaxRobin

    Tax Consultant

    Satisfied Customers:

    464
    International tax
  • /img/opt/shirt.png taxadvisor.uk's Avatar

    taxadvisor.uk

    Chartered Certified Accountant

    Satisfied Customers:

    2596
    FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
  • http://ww2.justanswer.com/uploads/MS/MsAM/2012-6-9_16426_anna.64x64.jpeg Anna's Avatar

    Anna

    Teacher, writer, biologist

    Satisfied Customers:

    268
    Great research skills, variety of work experiences, teaching experience.
  • http://ww2.justanswer.com/uploads/PD/pdheslin/2012-6-6_232056_pambig.64x64.jpg pdheslin's Avatar

    pdheslin

    Consultant

    Satisfied Customers:

    51
    20+ years of internet site creation and search engine optimization. Dozens of search tools at my disposal.
 
 
 

Related Tax Questions