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TonyTax
TonyTax, Tax Consultant
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Hi Tony Tax, Flatted property bought as a main residence

Resolved Question:

Hi Tony Tax,
Flatted property bought as a main residence in Sept 2001 for £39,600 + £700 conveyancing fees. Sold in Sept 2014 as a 2nd property for £89,000.
in Sept 2002 bought and moved into a primary residence but kept the house and allowed my Mother to live in same rent free until her passing earlier this year. When sold ownership of the flat had been transferred into joint names of my wife and I (werent married when I bought property). My wife pays income tax at the lower rate while I pay the higher rate. Conveyancing fees were approx £2600 and by time we'd cleared mortgage the net proceeds from sale were £67,390.62. What CGT will we be liable for?
Spent about £7k on windows / doors / bathroom / central heating refurb over the 13 year period but ccan't find the receipts.
Many Thanks,
M.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell me when the property which you sold this month was put into joint names please.
Customer: replied 2 years ago.

Yes - 5th March 2014.

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I do some calculations.
Expert:  TonyTax replied 2 years ago.

Hi again.

In order for your wife's tax position to mirror yours insofar as entitlement to main residence relief is concerned, you would have needed to have put the property into joint names when it was your main home. See CG64950 for more information on that. The effect of not doing that is that, whilst you will qualify for relief from CGT on that part of the gain covered by the period you lived in the property and for the last 18 months of ownership, your wife will not unfortunately.

As your mother lived in the property rent free, I cannot see HMRC allowing a claim for letting relief.

YOUR CGT POSITION

Your share of the gain is £19,550 (£89,000 - £39,600 - £700 - £7,000 - £2,600 / 2). The sum of the gain for the period you lived in the property and the gain for the last 18 months of ownership will be exempt from CGT. That accounts for £3,736 (£19.550 / 157 months x 30 months). The remaining gain of £15,814 will be reduced by the annual CGT exemption of £11,000 assuming you have no other gains in 2014/15 leaving you with a net taxable gain of £4,814. As you pay tax at 40% or higher, your CGT will be £1,347.92 (28%).

YOUR WIFE'S CGT POSITION

Your wife's share of the gain is £19,550. The first £11,000 will be tax free due to the annual CGT exemption leaving her with a net taxable gain of £8,550. CGT on that at 18% will be £1,539.00. If it were all taxable at 28%, the CGT would be £2,394.00. If part of the gain takes your wife into the 40% tax band, the CGT will be somewhere between £1,539.00 and £2,394.00.

The calculations assume you did not nmake an election for the flat to be treated as your main home within two years of buying the second. It would have been ineffective in any event as soon as your mother moved into it

Take a look at HS283 for more information on the main residence and CGT.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Hi,

That's very clear thank you. Only clarification I require is -

Do you think HMRC will allow me to take the estimated refurb expenditure (£7,000) off the amount of gain without receipts from Tradesmen?

It can be seen from the property fittings that work has obviously been carried out in the last few years.

Regards,

Martin.

Expert:  TonyTax replied 2 years ago.
As far as the £7,000 improvements costs are concerned, I'd claim a deduction for them. HMRC may or may not ask to see proof of the expenditure. If they do and you cannot produce evidence including photographic, they may disallow part or all of the expenditure that you cannot prove.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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