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Sam
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Property - Capital Gains Tax

Resolved Question:

March 2000 - purchased a house for £135k (exc fees) - my name only on deeds Spent £125k on building works (loft, full downstairs extension, excludes repairs and maint) Nov 2006, left property and rented it out immediately June 2014 - tenant still in situ and market value of house is £425k What cap gains tax would I have to pay?

Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.

AS things stand - if you sell before Dec 2015 - then you will not have a capital gain to consider, as the time you lived there, plus the last 18 months of ownership are exempt under the private residence relief rules.

If you sell after Dec 2015 - then your initial gain is £290,000 from which you can deduct the costs to buy and sell and also the capital improvements (so you will need to determine from the £125,000 how much was attributable to the loft, downstairs extension as repairs and maintenance are not an allowable cost against capital gains

Then the remaining figure is considered for exemption under both the private residence relief rules, and the private lettings rules.
The private residence relief, will allow the time you lived there plus the last 18 months of ownership to be exempt/total ownership period x gain remaining after all costs allowed.

This figure is then deducted from the gain (after all costs allowed) and this figure is then considered for a further reduction for private lettings relief.

Private lettings relief is the lesser of
1) the amount of gain on which private residence relief has been awarded
2) The amount of gain left over after private residence relief has been awarded
3) £40,000

This lesser figure is then deducted - and after you have determined if any value is left over, then you also have the first £11,000 exempt, as this is you annual exemption allowance.

So to help you apply these - lets assume you sell March 2016 and £100K of the capital costs are allowable, and costs to buy and sell are £5000
Initial gain sale price less purchase price £290,000
Less allowable deductions £105000
Gain remaining £185,000
Private Residence relief
Total ownership 192 months
Time lived there Nov 2006 to June 2014 - 91 months plus the last 18 months of ownership = 109 months
So private residence relief 109/192 x £185,000= £105,026
This leaves a gain of £79,974 to consider

Then private lettings relief is considered
This is the lesser of
1) the amount of gain on which private residence relief has been awarded - which is £105,026
2) The amount of gain left over after private residence relief has been awarded - which is £79,974 OR
3) £40,000

As the lesser is £40,000 this is then deducted from the remaining gain of £79,974 - this leaves a gain of £39,974
Then the first £11,000 is exempt which leaves a final gain of £28,974 to consider

The capital gain rate is determined by your annual income,
If more than £42,475 then this will all be charged at 28% £8112.72
If your annual income is less than £42,475 - then some of the gain (the unused basic rate band) will be charged at 18% and any remaining gain at 28% - so between £5794.80 and £8112.72

Please let me know if you have any follow up questions

Thanks

Sam



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Customer: replied 3 years ago.

Sam - this is superb and have left excellent as my reply


 


Why would I not pay anything if i sold this year?


 


I don't understand that bit - sorry :(


 


Ian

Expert:  Sam replied 3 years ago.
Hi Ian

Thanks for your response

I do apologise - I initially thought you had lived in the property right up to June 2014 - and then when I worked out the capital gain for selling after Dec 2015 - I realised my mistake - and had already sent the answer -

So the position at todays date is as follows

Using the same £185,000 fain after the purchase price and costs to buy and sell, and allowable capital costs have been considered



Private Residence relief
Total ownership 171 months
Time lived there Nov 2006 to June 2014 - 91 months (you do not get the last 18 months as you have just moved out!) So private residence relief 91/171 x £185,000= £98,450
This leaves a gain of £86,550 to consider

Then private lettings relief is considered
This is the lesser of
1) the amount of gain on which private residence relief has been awarded - which is £98,450
2) The amount of gain left over after private residence relief has been awarded - which is £86,550 OR
3) £40,000

As the lesser is £40,000 this is then deducted from the remaining gain of £86,550 - this leaves a gain of £46,550
Then the first £11,000 is exempt which leaves a final gain of £35,550 to consider

The capital gain rate is determined by your annual income,
If more than £42,475 then this will all be charged at 28% £9554
If your annual income is less than £42,475 - then some of the gain (the unused basic rate band) will be charged at 18% and any remaining gain at 28% - so between £7110 and £9554

So it would be worth you hanging on for a few more months to get the benefit of the last 18 months of ownership exempt.

Thanks

Sam


Customer: replied 3 years ago.

Sam


 


Sorry sorry sorry - I still do no think you have read it right ......


 


**March 2000 - purchased a house for £135k (exc fees) - my name only on deeds - and spent £125k on building works (loft, full downstairs extension, excludes repairs and maint) **Nov 2006, left property and rented it out immediately *fJune 2014 - tenant still in situ and market value of house is £425k What cap gains tax would I have to pay?


 


We moved out in Nov 2006 and the tenant moved in the next day - as og today, June 2014, she is still there


 


We lived there from March 2000 to November 2006

Expert:  Sam replied 3 years ago.
Hi


I am afraid that is not how it read
It read as if you had purchased in March 2000 - renovated it - moved in Nov 2006 and then moved out June 2014 and then let it out immediately.

Now you have advised otherwise, would you like me to proceed using the correct information to make new calculations?


Thanks

Sam
Customer: replied 3 years ago.

Hi Sam


 


Yes please


 


Purchased and moved in March 2000 ---- Lived in it up to November 2006 ---- Rented from November 2006 to date


 


 

Expert:  Sam replied 3 years ago.
Hi


Thanks Ian

Lets revamp those figures

The gain will still stand at £185,000
The time you lived there will be 83 months plus the last 18 months of ownership so a total of 101 months
Total ownership to date 171 months

So 101/171 x £185,000 = £109,269
This leaves a gain of £75,731 to consider
Then private lettings relief, of which £40,000 is still the lesser of the amounts to consider is then deducted
This leaves £35,731
The first £11,000 is exempt - leaving a chargeable gain of £24,731
If you earn more than £42,475 a year then the tax will be at 28% = £6924.68 but if your annual income is less than £42,475 a year - then the gain will be between £4451.58 and £6924.68

Do feel free to ask any follow up questions, and again many apologise for the misread of information

Thanks

Sam

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