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Question: I purchased a house in December 2007 with my Girlfriend

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Question: I purchased a house in December 2007 with my Girlfriend it was our only and primary residence and remains the only house we own. We let it out in June 2011 (and moved in to separate rented accomodation) till now and are currently in the process of selling it. There is a Capital Gain on the property. My understanding is that there should be no tax to pay due to the time between Dec-07 to June 2011 it was a main residence and so no tax is due in this period but that there is also a 3 year window where there is additional no tax to pay or rather some sort of letting relief which looks back three years and as the property has not been let out for the full 3 years there is also no tax to pay.
Is this correct?

Thanks,

Mike
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.

Hello Mike, I'm Keith and happy to help you with your question.

 

Well you are nearly right! The tax relief which ignores the last three years for Capital Gains Tax (CGT) purposes drops to 18 months from 6 April 2014 so if you act quickly and complete before that date the three year exemption will still apply. If you get caught by the new rule do not despair. CGT will be calculated by the months of ownership and only those months when it was not your sole or main domestic residence less the 3 year or 18 month rule (whichever applicable) chargeable. Capital gains are assumed to accrue evenly over the whole period of the ownership so only a small portion of any gain will be liable to CGT. In addition there is an Annual Exempt Amount of 10.9K this tax year, 11.1K next and also a relief called Lettings Relief (up to a maximum of 40K) to take into account too. Remember, as you bought with your girl friend you will be assumed to be a 50% owner so only half the gain will come into the equation anyway. The other half will be the other half's responsibility and they get the same allowances too.

 

In the end I suspect that you will find any CGT liability minimal in this case.

Customer: replied 3 years ago.

Keith,


 


Many thanks for this - a couple of follow questions on this if I may:


 


As I assume it is unlikely to close by 6th April. If I lay out the figures perhaps you could add a little meat to the bones.


 


I purchased the house for £408k (plus stamp - I assume this does not get included) I am selling for £500k Gross - lets just call it NET to make things easier.


 


So there is a gain of 92k - which between me and my partner is 46k gain each. If we assume completion the the 1st May this year. What is my likely tax bill on the sale. I am a higher rate tax payer. Is the lettings relief per house or per owner?

Expert:  bigduckontax replied 3 years ago.
Right, to compute a gain your purchase price is inflated by all costs of purchase including stamp duty. The selling price has deducted all sales costs and from this the gain is computed. Your gain is say 46K, only 17/77 of which is liable on a monthly basis allowing for the 18 month rule giving a gain of a tad over 10K which is within your annual exempt limit, simple as the meerkat in the TV advert would say! Were there any surplus actually liable then the Lettings Relief would mop it up anyway.
Customer: replied 3 years ago.

Keith - thanks for this last one then.


 


 


So my house cost me £408k plus 3% Stamp so £420k - plus legal at £1k


 


so my total purchase was £421k


my sale should be £500k less fees of say £7k. So total gain is £72k


 


50% of this is £36k this multiplied by 17/77 is £7.9k per person which would be under my 2014-2015 CGT allowance which would apply also to my girlfriend leaving no tax to pay. Do you concur?


 


 

Expert:  bigduckontax replied 3 years ago.

Yes, I concur, as any politician worth his salt would say!

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Category: Tax
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Expert:  bigduckontax replied 3 years ago.

Thank you for your support.

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