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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Capital Gains Problem

Customer Question

What ways exist that I can take advantage of, in order to avoid or minimize any liability I might have to pay Capital Gains Tax? This is my present situation. I bought with my wife a property I shall refer to as 3 Northcliffe, Filey in 1997 {2nd September} for £88,500, and I moved out of it in September 2006. My wife still lives in the property. We are tenants in common and each own half the property. I moved into a house 3 Northgate, Hunmanby and my wife contributed the sum of £85,000 towards its purchase. This property cost £169,000. We are joint tenants of this property. We also own as joint tenants another property { The Penny Farting}which is rented out. As far as I remember we paid about £15,000 to £20,000 for this property which required about £20,000 spending on it. Present value would be less than £100,000 in my estimation. We have had an offer on 3 Northcliffe of £475,000. Taking into account the above facts, what if {hopefully} any Capital gains tax would I have to pay as opposed to my wife. My wife is a pensioner with no income except her pension and a modest amount monthly in rent from The Penny Farthing. I have a modest Teachers Pension and the State Pension.

Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

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

 

Whichever way you turn there is going to be a liability to Capital Gains Tax (CGT) somewhere. As far as I can see you own 3 residences and on one you will be able to claim Private Residence Relief which eliminates any gain from CGT. On purchase of each new property you have two years in which to elect which property is to be the one to which the Private Residence Relief is to apply, but you do not appear to have made any any such election. In circumstances such as you describe HMRC will determine from the facts which residence is entitled to the relief. I cannot tell you which way the HMRC cat might jump. In my opinion you must take this case to a local, experienced professional to negotiate with HMRC on your behalf.

 

I am so sorry I cannot be of more assistance in this matter.

Customer: replied 2 years ago.

Thank you for your advice. Do I take it that if my wife and I elect to choose 3 Northcliffe as our main residence on which to claim Private residence relief, there will be no CGT?

Expert:  bigduckontax replied 2 years ago.
Correct, but you have to make the election within 2 years of acquiring a new property. If you fail to do this then HMRC will determine from the facts for which property Private Residence Relief is appropriate which left me in the quandary that I, not being clairvoyant, do not know which way the HMRC cat will jump. You can be pretty sure though that their election may well be based on their desire to fill their coffers with CGT! It's all time based, you see.

I do hope I have helped. Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 2 years ago.

Thank you. I'll leave it there for now

Expert:  bigduckontax replied 2 years ago.
Pleased to be of assistance.

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