How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask bigduckontax Your Own Question

bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 2986
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

I have a house that was my main residence for a year but then

Customer Question

I have a house that was my main residence for a year but then rented out the rest of the time which is several years. During the year I was there I had 2 lodgers stay with me.
I am wondering what my Capital Gains position will be if I sell. I understand the time you live in a house and the last 18 months are treated as exempt. Also I have heard of private letting relief.
But because I shared with 2 lodgers, can I claim those exemptions in the same way as if it was just me living on my own?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

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

Your are well on the way to understanding. Your Capital Gains Tax (CGT) position is as follows.

Take the purchase price, add costs of purchase add any improvements eg new kitchen, installation of central heating, double glazing etc. Then take the sale price less the costs of sale, take one from the other and that is the capital gain.

Now work out your total ownership time in months. Ditto for the rental period and from the rental period deduct 18 months. This figure over the total ownership period is the proportion of the gain which will be subject to CGT.

From that deduct your Annual Exempt Allowance of 11K and Lettings Relief of up to 40K; that assumes that you have been declaring the gain for Income Tax.

As far as the lodgers are concerned if there were more than one then the rental figure period would be extended by that occupation time reducing the proportion adjustment figure and increasing the chargeable gain.

I do hope I have helped in this short canter through the CGT jungle; an extremely complex tax.

Customer: replied 2 years ago.

Thank you for your quick reply Keith,

My main issue is that I only lived there whilst I also had 2 lodgers. So does that mean I don't qualify for any main residence relief at all?

Ie can I not knock off the % for year I was there and final 18 months.

If that's the case I assume I wouldn't qualify for the lettings relief either.

cheers

Janine

Expert:  bigduckontax replied 2 years ago.
The last 18 months don't count any way; they are deemed to be entitled to Private residence Relief (PRR) anyway. As far as I can see you would be entitled to both reliefs, but, of course, the amount of PRR would be substantially reduced.
Customer: replied 2 years ago.

Thanks Keith

I think I understand now

If, for example, the gain is 260 000 and I own it for 10 years

I would be taxed on 8.5/10 (221 000) of this as I can only treat the last 18 months as exempt. This is because it was also rented to more than one lodger during that year I was there, so that doesn't feature in the equation to reduce gain by another year.

If the PRR is the smaller of 40k, the gain (221 000) and the exemption (39 000) , am I right that would only be 1.5/10 of 260 000 (39 000)

In other words I'd be taxed on 260K less 39000 less a further 39000 (less the annual tax free 11k)

Hope I got it now!! Phew need a lie down.

cheers

Janine

Expert:  bigduckontax replied 2 years ago.
Yes Janine, the two lodgers are the proverbial ni**ers in the woodpile.
The gain is 221K. Take off 11K and 40K (Annual Exempt and Lettings Allowances) leaves 170K taxable to be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
These calculations are definitely a wet towel round the head and the backs of lots of envelopes to work it all out!
Customer: replied 2 years ago.

Thanks Keith

Sorry to keep on. But is the lettings relief 40k or would it be 39 being lower.

I think its the lower of 40, the gain and the bit treated as main res (ie 39) isn't it?

cheers

Janine

Expert:  bigduckontax replied 2 years ago.
HMRC say:
'The maximum amount of Letting Relief due is the lower of:
£40,000
The amount of Private Residence Relief due
The amount of gain you've made on the let part of the property' [which in your case is all of it].
Customer: replied 2 years ago.

Thanks

So in my scenario it would be 39k being the PRR 1.5/10 260k

cheers

Janine

Expert:  bigduckontax replied 2 years ago.
I am sorry Janine, but from whence are you getting this 39K?
Customer: replied 2 years ago.

I thought that was the amount of PRR which equates to the % of ownership treated as Main residence which in this case is only the last 18 months.

ie gain is 260K and after PRR of 39k it leaves 221K

I thought the lettings relief was the lower of 40k 39k or 221k using those figures.

Or have I misunderstood?

Expert:  bigduckontax replied 2 years ago.
Oh I see! No the percentage of the ownership which is used to calculate the gain is that proportion of the time when the property was not let, deemed to be the last 18 months. It is that factor which determines the gain from which the Annual Exempt Allowance and Lettings Relief are then deducted. You are tending to mix chalk and cheese in your approach.
Customer: replied 2 years ago.

I'm so sorry to keep bothering you but I still don't understand what the 2nd value would be then in the HMRCs lowest of 3:

'The maximum amount of Letting Relief due is the lower of:

£40,000

The amount of Private Residence Relief due

The amount of gain you've made on the let part of the property'

If the PRR in my scenario isn't 39k Im not quite sure what it is.

cheers

Janine







Expert:  bigduckontax replied 2 years ago.
But the PRR comes out automatically and is applied by the factor calculation. If that is 39K then your Lettings Relief is similarly restricted. It is the reciprocal of the factor figure times the gain.

What Customers are Saying:

 
 
 
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
< Previous | Next >
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP
  • I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin
  • Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
 
 
 

Meet The Experts:

 
 
 
  • Sam

    Sam

    Accountant

    Satisfied Customers:

    6894
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
< Last | Next >
  • http://ww2.justanswer.com/uploads/TA/Tax Expert/2013-8-21_231010_sam.64x64.jpg Sam's Avatar

    Sam

    Accountant

    Satisfied Customers:

    6894
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
  • http://ww2.justanswer.com/uploads/BI/bigduckontax/2013-8-12_222058_1.64x64.jpg bigduckontax's Avatar

    bigduckontax

    Accountant

    Satisfied Customers:

    1772
    FCCA FCMA CGMA ACIS
  • http://ww2.justanswer.com/uploads/TA/TaxRobin/2013-8-28_16186_femalebusinessprofessionalbinderhand11038485.64x64.jpg TaxRobin's Avatar

    TaxRobin

    Tax Consultant

    Satisfied Customers:

    464
    International tax
  • /img/opt/shirt.png taxadvisor.uk's Avatar

    taxadvisor.uk

    Chartered Certified Accountant

    Satisfied Customers:

    2596
    FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
  • http://ww2.justanswer.com/uploads/MS/MsAM/2012-6-9_16426_anna.64x64.jpeg Anna's Avatar

    Anna

    Teacher, writer, biologist

    Satisfied Customers:

    268
    Great research skills, variety of work experiences, teaching experience.
  • http://ww2.justanswer.com/uploads/PD/pdheslin/2012-6-6_232056_pambig.64x64.jpg pdheslin's Avatar

    pdheslin

    Consultant

    Satisfied Customers:

    51
    20+ years of internet site creation and search engine optimization. Dozens of search tools at my disposal.
 
 
 

Related Tax Questions