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bigduckontax, Accountant
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Question on capital gains tax on my residential property in

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Question on capital gains tax on my residential property in London - I bought a freehold proprty in London in February 2011 for £1.325m (with an LTV of 70%) and lived in the property until March 2014 (a total of 3 years and 1 month). We have now relocated to Switzerland for professional reasons and are resident and domiciled there from a tax perspective. We decided to rent out our property in London yielding us a a net rent of c.£25k after mortgage interest payments - this is now our my only UK income.

My first question is if I were to sell this property in the future when would I be liable to capital gains tax? Is that after 18 months my tenants have moved in (i.e. mid March 2014)?

Secondly what rate would I be charged at and what amount would I need to pay the day after the capital gains tax rule applies assuming the property' market value is now £1.9m. What amount would I pay for after one, two and three years from the date I am liable to capital gains tax? Please assume a constant market value of £1.9m for argument's sake.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

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

 

Yes, the gain you make on some future sale would be subject to Capital Gains Tax (CGT). However that would be substantially tempered by a number of factors. The calculation is relatively simple [ha,ha]. You take the total ownership in months and calculate the personal occupation period ditto. Assuming you sold in September 2015 [18 months after March 2014] that would be 66 and 48 respectively. Gain is 1.9M - 1.325 = 0.754M @ 18/66 = say 0.157 chargeable to CGT. But soft, the last 18 months of ownership are excluded so in CGT liability terms the answer is the proverbial lemon! Forget about the mortgage; it doesn't come into the CGT equation at all, but the interest element of your repayments is allowable against the rental income you receive for Income Tax purposes.

 

On top of this you have an Annual Exempt Allowance of 11K for CGT purposes plus in this case Lettings Relief of up to 40K to offset any gains so what with everything I think you will escape CGT altogether in the scenario you have advanced. I would be inclined to advise you to consult independent professional advice when you come to sell, especially in view of the relatively high sums involved. One might hope that thus would come within the remit of the solicitor who handles the conveyancing for you as the vendor.

 

The rate of CGT is 18% or 28% on the gain depending upon your personal income plus the gain in the year of sale. It is declared on your annual self assessment and payable by 31 January in the tax year after the tax year of sale.

 

I do hope I have helped to throw some light on your situation.

Customer: replied 2 years ago.

Thank you very much for your answer. I had a few follow-on questions relating to your response:


 


So just to be clear when you mention escaping CGT altogether that is in the context of selling within 18 months of my tenants moving in?
So how much CGT will I pay if I sell in March 2016 and March 2017? Could you please provide calculations including CGT relief, lettings relief, etc (currently being rented out at £1,300 per week).


 


 


How is the CGT rate detemined? My only ncome in the UK would be my rental income? (£60k gross p.a. net of estate fees / £17k net incl. mortgage repayment).


 


thank you.


 


regards,


 


Sarah


 


Thank you

Expert:  bigduckontax replied 2 years ago.

I am sorry to be so long:

 

Case 1; gain 575K @ 24/61 = 230K - 11K - 40K = 179K @ 28% = 50,12K tax due.

 

Case 2; gain 575K @ 36/73 = 283K - 11K - 40K = 232K @ 28% = 64,96 tax

Customer: replied 2 years ago.

Thank you. This is helpful. One last question: What is the criteria to determine the CGT rate of 28% vs 18%

Expert:  bigduckontax replied 2 years ago.

It is also wrong! Please leave me some time with a wet towel round my head to sort out your problem, Sarah.

 

Sale 1; 575 @ 24/61 = 226 - 11 - 40 = 175 @ 28% = 49K tax

 

Sale 2; 575 @ 36/73 = 284 - 11 - 40 = 233 @ 28% = 65K tax

Expert:  bigduckontax replied 2 years ago.
The criteria for determining whether CGT is at 185 or 28% depends upon your world wide income in the year of sale. Again the calculation is not simple and the gain may be taxed at both rates, one bit being to use up your remaining basic rate band available (at 18%) and the balance at 28&. From your figures the majority of your gains will fall into the higher category.
bigduckontax, Accountant
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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