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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4717
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I bought my flat in 2005 and lived there fulltime until October

Customer Question

I bought my flat in 2005 and lived there fulltime until October 2012. I bought a house and did that up uptil April 2013. I moved full time into the house then. This is now my main residence however I keep a room at flat as I socialize in this area and my friend has the other room at £750 pcm. My friend has moved out and i'm considering selling or renting. I was told the Capital Gains Law has changed and it is no longer 3 years excempt for capital gains for second property. Can you advise. Also if I keep the property i will need to spend 30k on updating etc. Would this effect what I would be taxed eventually on capital gains. If I rented the full flat out at 1500pcm and my mortgage was £750. Would I be taxed on just the profit or the full amount. This is interest only so I was also thinking about changing to repayment which would effect monthly payment but want to know how the tax is calculated. IE on profit or full amount. Thanks in advance.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

[q]
I was told the Capital Gains Law has changed and it is no longer 3 years excempt for capital gains for second property. Can you advise.

[a]
CGT rules have changed and now you get additional relief for 18 months instead of 36 months. This relief is available only on property that is your main residence and not second home.

[q]
Also if I keep the property i will need to spend 30k on updating etc. Would this effect what I would be taxed eventually on capital gains.

[a]
Any expenditure you incur that would enhance the value of the property and is deemed capital and not general repairs would be allowable and added as enchancement costs in arriving at final cost price for CGT purposes.

[q]
If I rented the full flat out at 1500pcm and my mortgage was £750. Would I be taxed on just the profit or the full amount. This is interest only so I was also thinking about changing to repayment which would effect monthly payment but want to know how the tax is calculated.

[a]
You would be taxed on the net profit from property income. Allowable deductions include cost of repairs and maintenance, interest paid on the loan, agent's management fee, accountancy fee etc.

More information on private residence relief can be found here

http://www.hmrc.gov.uk/helpsheets/hs283.pdf


I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.


Customer: replied 2 years ago.


I'm still not clear on the first point. so if I sell my flat I will get capital gains tax as over 18 months? If I bought for 187,500 and it is now worth 500k how much would this be. In total I have spent 15k in enhancements. New Kitchen, Bathroom etc. thanks


 

Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.

As this was your main residence up to Oct 2012. Provided you sell it within 18 months of moving out, all gain would be covered by private residence relief and additional relief.

As you have surpassed the 18 month period, you would still be able to sell it and escape CGT as you would be able to claim letting relief up to a maximum of £40k for the period the property was let.

The period let is small in relation to total period of ownership. Provided your gain for the period let remains less than £40k, there would be no CGT payable.

CGT calculation

Cost price 202,500

Sale price 500,000 – sale in Oct 2014

Total gain 297,500

Period of ownership 9 (108 mths)
Main residence 7 years (84 mths)
Last 18 months exemption (18 mths)
Letting period 2 years (24 mths)

Total exemption (private residence relief) = (84+18 = 102mths)=94%
Taxable gain 108-102 = 6 mths/108 mths = 6%

Chargeable gain 297,500 x 6% = £17,850
Letting relief = £17,850
CGT payable = NIL


I hope this is helpful

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