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TonyTax
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Previous residence / second home, selling after 6.5 years. I

Resolved Question:

Previous residence / second home, selling after 6.5 years.

I moved out of what was my main residence 6.5 years ago to a new residence, attempted to sell the property unsuccessfully at the time. I've kept the property on, in which i stay there very infrequently for work convenience (probably once a month). I'm now looking to sell the property. Aware that i had 3 years grace to sell the property without attracting CGT, but my question is, now that i'm selling it after 6.5 years, do i have to pay CGT on the full gain, or just the estimated gain that occurred after the 3 year grace and now?

The property would probably sell for circa £200k, was purchased for £99k, but with a mortgage of circa £120k currently.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

If you can let me have the following information I'll do some calculations:

1 The month and year you bought the property.

2 The month and year you moved out of the property.

3 Do you own another property which you consider to be your main home?

4 Do you own the property you wish to sell solely or jointly?

5 Has the property ever been let?
Customer: replied 3 years ago.

1 The month and year you bought the property.


May 2001

2 The month and year you moved out of the property.


January 2008

3 Do you own another property which you consider to be your main home?


Yes, jointly, from January 2008 (HMRC not notified of this).

4 Do you own the property you wish to sell solely or jointly?


Solely.

5 Has the property ever been let?


No, but not left vacant. A friend also stays there, circa 8 days a month (weekends), rent free, albeit he pays the council tax in his name.


 


Thanks

Expert:  TonyTax replied 3 years ago.
Thanks.

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

Hi again.

When you sell a property, any gain is deemed to have accrued evenly over the entire period of ownership.

 

If you sell the property in July 2014 for £200,000 having paid £99,000 for it in 2001 you will make a gain of £101,000. By that time you will have owned it for 159 months of which you will have lived in it for 80 and it will have been vacant (certainly not let) for the most part for 79.

The gain for the period the property was your main home will be exempt from CGT as will the gain for the last 18 months of ownership (the last 36 months for exchanges of contract by 5 April 2014). That will account for £62,252 (£101,000 / 159 x 98). The remaining gain of £38,748 is that part of the remaining gain which is not covered by the last 18 months of ownership (£101,000 / 159 x 61). The first £11,000 of the remaining gain will be covered by the annual CGT exemption so you will be left with a net taxable gain of £27,748.

Had the property been let, you would have qualified for letting relief which would have covered the remaining gain resulting in no CGT liability. Whilst a friend stays there at weekends, the real problem is that you also use the property, albeit infrequently. You can read about letting relief here.

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 2014/15 tax year, the following will apply:

1 If your income in 2014/15 including the taxable gain is £41,865 or less, then all the taxable gain will be taxed at 18%.

2 If your income in 2014/15 excluding the taxable gain is more than £41,865, then all the taxable gain will be taxed at 28%.

3 If your income in 2014/15 excluding the taxable gain is less than £41,865 but more than £41,865 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.

Customer: replied 3 years ago.

Hi,


 


Thanks for the answer, two follow up / clarifications...


- with regards XXXXX XXXXX calculation of what portion attracts CGT, is a flat lien calculation the only accepted way? Given the vast majority if not all of the actual value gain would have occurred whilst i was in the property. Long shot question i know!


- with regards XXXXX XXXXX relief, what proof would i (have) need(ed) to claim this relief?


 


Thanks


 


 

Expert:  TonyTax replied 3 years ago.
The even accrual of the gain concept is non-negotiable I'm afraid.

Take a look here and here for information on letting relief. The definition of letting for the purpose of letting relief is quite loose as you will see in the second link. You could try to claim it but I'd be surprised if the tax office didn't question it, not least because you will have never disclosed any rental income in a tax return.
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