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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Hi there I bought a property with my father in 1999 (50 pct

Resolved Question:

Hi there
I bought a property with my father in 1999 (50 pct shared) and lived in it for a year before renting it out. Cost of 50k. My mother transferred her share of the property to me three years ago. I have a 125k mortgage and pay income tax on the rental income but am now thinking of selling the property, think its worth around 180. However I am not sure how to work out the capital gains tax I may need to pay, do any exemptions apply? I am a higher rate taxpayer.
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.
Hello and welcome to the site. Thank you for your question.

Your cost price will be made up of
- 50% share of the cost when you bought it in 1999
- the valuation of your mother's share that was transferred to you three years ago.

From the gain (sale proceeds less cost price as caluculated above).
- you can also claim for any capital improvements to the property during your period of ownership.
- costs associated with buying and selling the property.

Your reliefs/exemptions will be
- private residence relief for the period you lived in the property as your main residence
- additional relief for final 36 months (up to 5 Apr 2014) and the reduced to 18 months (from 6 Apr 2014)
- letting relief up to max £40k

All these reliefs would be available provided the property was your main residence at some point during the period of ownership.

Once you have taken the above reliefs into account, if there is a balance left then you claim Gains annual allowance against it (£10,900 in current tax year) and any balalnce left over would be taxed at 28% as you are higher rate tax payer.

The above explains how CGT would be calculated.
More information on private residence relief can be found on HS283 here

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.
Thanks for your answer! Assuming the valuation was 180k when the transferred over and the flat sells for 180k, would you be able to calculate the capital gains liability? Assuming no capital improvements and 2k selling costs?
Thanks
Expert:  taxadvisor.uk replied 3 years ago.
Anni, thank you for your reply.

I will revert to you with calculations shortly.

Many thanks
Expert:  taxadvisor.uk replied 3 years ago.
Anni, thank you for your patience

Assumptions made
- flat was main residence for one year
- sale takes place before 5 Apr 2014

CGT calculations
Sale proceeds £180,000
Cost price £117,000
Potential capital gain £63,000
months
Period covered as main residence 12
Period unoccupied 0
Period covered as let property 171
Total period of ownership 183
Final 36 months relief 36
Private residence relief £16,525
Gain subject to CGT £46,475
Number of owners 1
Gain per owner £46,475
Maximum letting relief available - lower of
Fixed amount set by HMRC per owner £40,000 £40,000
Private residence relief £16,525
Gain on the part of the property that's been let £46,475
Letting relief £16,525
Gains chargeable to CGT £29,950
Gains annual allowance (£10,900 per owner) £10,900
CGT on amount 19,050
Tax year 2013-14
Gains chargeable to CGT 19,050
Annual Gains exempt allowance 10,900
Chargeable gain 8,150
CGT calculation
As income after personal allowances is >£32,010
then CGT on gain is taxed at 28% £2,282

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 3 years ago.
I thank you for accepting my answer.

Best wishes

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