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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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I bought a property in 2001 for £180,000 and lived there for

Customer Question

I bought a property in 2001 for £180,000 and lived there for three years before tuning it into a rental property. Neighbouring flats have recently sold for up to £400,000 so we are considering selling and would like to know what CGT we might be required to pay. My wife and I joint own the property. She pays basic rate income tax and I pay 40%.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

Can you tell me which month in 2001 you bought the property, which month and year you moved out and the month and year you first let it please. Has it been let continuously since and is it still let? Have you made any improvements to the property? If so, what did you do and what was the cost?
Customer: replied 3 years ago.
I believe it was August 2001 we bought it.
We moved out in Sept 2005 and it was rented straight away.
We put in a new kitchen for £4k and have upgrade the bathroom costing £1k.
It has been let continuously and is still let.
Expert:  TonyTax replied 3 years ago.
my answer.Thanks.

Leave this with me while I do some calculations and draft my answer.
Customer: replied 3 years ago.
Sorry, I made a mistake.

We moved out in sept 2004.
Expert:  TonyTax replied 3 years ago.
I was just about to post my answer. I'll adjust the calculations.
Expert:  TonyTax replied 3 years ago.
Hi again.

The following figures are for each of you:

SALE (EXCHANGE OF CONTRACTS) BY 5 APRIL 2014

If you sell the property by 5 April 2014, you will make a gain of £215,000, £107,500 for each of yourself and your wife. By that time, you will have owned it for 153 months of which you will have lived in it for 38 and let it for 115

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. That accounts for 51,993 (£107,500 / 153 x 74). The remaining gain of 55,507 is that part of the letting period gain not covered by the last 36 months of ownership (£107,500 / 153 x 79).

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 £51,993 and

3 the letting period gain of £55,507.

Letting relief of £40,000 will reduce the remaining gain of £55,507 to £15,507 and the annual CGT exemption of £10,900 will reduce it further to leave you with a taxable gain of £4,607.

SALE (EXCHANGE OF CONTRACTS) AFTER 5 APRIL 2014

The exemption for the last 36 months of ownership is being reduced to an exemption for the last 18 months of ownership with effect from 6 April 2014. So, if you sell on 6 April 2014, the figures will be as follows:

Exempt gain £39,346 (£107,500 / 153 x 56).

Letting period gain £68,154 (£107,500 / 153 x 97).

Letting relief £40,000.

Taxable gain £17,154 (£68,154 - £40,000 LR - £11,000 CGT AE).

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, the following 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%.

The 2014/15 tax bands are not significantly different to the 2014/15 bands.

There is more information on the main residence and CGT in the HMRC helpsheet HS283.

I hope this helps but let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15835
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 3 years ago.
Is it possible to update this thread? If it is, I have since had the above property valued at between £425 and £450. I would like to re do the numbers using both these figures.

Please let me know whether or not this is possible.

Cheers,

Ben
Expert:  TonyTax replied 3 years ago.
You just have to apply the calculation method to the additional gains of £25,000 and £50,000.

For an extra gain of £12,500 each, the net taxable gain will increase by £6,454 for a sale by 5 April 2014 for each of you.

For an extra gain of £25,000 each, the net taxable gain will increase by £15,850 for a sale after 6 April 2014 for each of you.

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