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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4521
Experience:  FCCA FCMA CGMA ACIS
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I inherited my late Mothers cottage in Jan 1996 and was living

I inherited my late Mother's cottage in Jan 1996 and was living there until I was offered a job 300 miles away in Cornwall in April 1998. I therefore bought a house in Cornwall at this time, and let the cottage until Nov. 2011 when it needed to be substantially renovated. However the cost of the renovation was beyond my means and although using it as a second home occasionally, it was not otherwise occupied. I am now on the point of selling the property (unimproved) for £289,500 (desirable village!) but wonder what my CGT liability will be. My part-time income will be approx. £11k this tax year
You will be liable to CGT on what is effectively your second home. You will get some relief for the time it was your sole or main domestic residence. So we work in months. You owned the house for a total of say 223 months. Take the time you lived in it as your only home plus the last 18 months of ownership, 46 months. You are taxable on 177/223 of the gain. Unfortunately you did not put the acquisition price [the probate value] in the question without which I cannot calculate the gain. Let me suggest it was 100K, 290k - 100K = 190K @ 177/233 is a 144K gain. 144K less Annual Exempt Allowance of 11K and Lettings Relief at 40K leaves a gain of 93K. This is taxed at 18% or 28% or a combination of the two depending on your income in the year of sale including the gain. That is an income of 104K. CGT would be at 18% on 31865 - 11000 = 3756 then the balance at 28% = 20968 total CGT of say 24K. All these figures have been generally rounded. I do hope you get a gist of the general idea for a computation.
I assume that you did not elect within 2 years which property was to be your sole of main domestic residence for CGT calculations so that will be decided by HMRC on the facts which pretty clearly point to your Cornwall residence being the one attracting Private Residence Relief.
O do hope I have been able to shed some light on your problem.
Customer: replied 3 years ago.

The valuation on probate was £80,000

So the gain is 290K - 80K = 210K @ 177/233 = say 160K; deduct 11K (AEA) and 40K Lettings Relief (40K) = 51K, gain 109K. Tax at 18%, 3.7K; at 28% 25K, total tax say 29K tax to pay. Not far out from my original guess!

Thank you for your excellent support.

Customer: replied 3 years ago.

I realise that I may need to pay you some more! But the purchaser of the 0.5acre plot wants to use his father to pay £40k for part of the garden (notifying Land Registry) so that he only needs a mortgage for £249,950 - is this okay? and do I wait until next tax year for the £40k and benefit from lower CGT or do everything this tax year?

The sale for CGT purposes crystalises on the date of the exchange of contracts. Who actually pays on completion is an irrelevance as, indeed is any mortgage. The gain will from part of the tax return for the year in which the exchange of contracts takes place so if it were on 4 April 2014 it would be in the 13/14 tax year and if it were the 7 April 2014 it would be in the 14/15 ditto. For a 14/15 tax year sale it would not require declaration until after 6 April 2015 (31 October 2015 on paper or 31 January 2016 on line) and then any tax due payable 31 January 2016.
Customer: replied 3 years ago.

I understand what you have written, thank you, ***** ***** leaves unanswered whether it is preferable to complete the £40k part of the transaction at the same time as the £249.950 exchange of contracts this tax year, or to wait until the 2015/6 tax year if it gives a lower total CGT overall - the latter choice could be a problem as it was never valued at the time of probate as 2 components? If this second option is risky, then I will ask for option 1.

Oh, I see; it would be much better if both exchanges were done on the same day. This would avoid all possible pit falls. Can this not be achieved?