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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 am just in the process of selling a flat in Richmond that

Customer Question

I am just in the process of selling a flat in Richmond that I have owned since 2006. In 2009 I moved into what is now my family home in New Malden. The flat was bought for £284k and is sold for £440k. I would like to reinvest all of the gain in another flat, this time in Central London. What facilities exist to allow me to minimise, or better waive, CGT at this time please?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

Can you confim whether the flat was ever let please. It it was let, can you confirm that it was not a furnished holiday let? Has it actually been sold, ie contracts exchanged?
Customer: replied 3 years ago.
I lived in the flat myself from the date I bought it in July 2006 until I moved into my family home in September 2009. Since then it has been let as an unfurnished let. One of the tenants rented between March 2010 and March 2013, and the other tenant rented between March 2013 and August 2013. The flat has been vacant since then. Thanks. Sam.
Expert:  TonyTax replied 3 years ago.

Thanks.

You said the flat "is sold". I asked if you had exchanged contracts yet. If you haven't do you have any idea when that is likely to happen. Is or was the property jointly owned?

Customer: replied 3 years ago.
Sorry, yes, I have accepted an offer on the flat. Exchange of contracts is due to take place in a few weeks.
Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 3 years ago.

Hi again.

So long as you exchange contract to sell by 5 April 2014, you will be entitled to have the last 36 months of ownership of the property treated as an exempt period for CGT purposes even though you were not living in the property.After 5 April 2014, that period will be reduced to 18 months.

SALE (EXCHANGE OF CONTRACTS) BY 5 APRIL 2014


If you sell the property in March 2014, you will make a gain of £156,000 (£440,000 - £284,000). By that time, you will have owned it for 93 months of which you will have lived in it for 38, let it for 42 and it will have been vacant for 13.

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 £124,190 (£156,000 / 93 x 74). The remaining gain of £31,871 is split between those parts of the letting and vacant periods, £21,806 and £10,065 respectively, not covered by the last 36 months of ownership.

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 £124,190 and

3 the letting period gain of £21,806.

Letting relief of £21,806 will reduce the remaining gain of £31,871 to £10,065 and the annual CGT exemption of £10,900 will cover that so you should have no CGT to pay.

SALE (EXCHANGE OF CONTRACTS) AFTER 5 APRIL 2014

If you exchange contracts after 5 April 2014, you will have a taxable gain of £62,065 which will be reduced by letting relief of £40,000 and the annual CGT exemption of £11,000 to leave you with a taxable gain of £11,065.

There are no reinvestment reliefs for the sale of a non-business asset such as a let property unless you want to invest in high risk companies through such vehicles as the Seed Enterprise Investment Scheme as opposed to investing in another property.

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.

Customer: replied 3 years ago.
That's great thank you. The flat was bought between myself and my friend under a co-ownership agreement, in which he owns a 60% stake and I own a 40% stake. We both vacated the flat at the same time, and I have acted as the land lord while he has been travelling in Asia. I assume it can multiply all of your values by 40% to identify my gain! and my reliefs! etched.

Thanks again - much appreciated.
Expert:  TonyTax replied 3 years ago.
It's not quite as straightforward as that.

You would need to re-work the figures based on a 40% share for yourself and 60% for your friend. It may not make a difference overall but letting relief is worth up to £40,000 per part owner, not per property. It would probably make more of a difference for a sale post 5 April 2014.

If your friend is treated as not UK resident for UK tax purposes, he should not have to pay CGT on his share of the gain.
Customer: replied 3 years ago.
Great, so if I rework the figures:

The gain is £156k, of which 40% is my gain, i.e. £62,400.

I am exempt of 38/93 of the gain for the period I lived in the flat, and assuming the sale completes after 6th April, I am exempt a further 18 months, i.e. 18/93, leaving a taxable gain of £24,825.

If I apply £40k letting relief, for the period the flat was let, then I have no CGT to pay.

Hope I've got it correct. Thank you.
Expert:  TonyTax replied 3 years ago.

The letting relief is the lesser of the £40,000, the exempt gain, £37,574 (£62,400 / 93 x 56) and the letting period gain £20,800 (£62,400 / 93 x 31). So you are left with a taxable gain of £4,025 which will be covered by the £11,000 annual CGT exemption for 2014/15.

If you exchange contracts to sell by 5 April 2014, the exempt gain will be increased by 18 months worth of the gain and the letting relief will be adjusted too.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 3 years ago.
I was just reading HS283. I understand now the private residential tax relief and the letting relief, but I don't understand why I qualify for 36 months tax relief if I sell before 5th April and only 18 months tax relief if I sell after 6th April. Where can I read about this relief please? Thank you.
Expert:  TonyTax replied 3 years ago.
The announcement was made in the Autumn Statement by the Chancellor and you can read about it here.

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