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I bought a house in July 2011 for £120,000 and lived in the

Customer Question

I bought a house in July 2011 for £120,000 and lived in the property till Feb 2013. I updated the property (new kitchen, bathroom and decorated it costing approx £10,000 to £15,000)
i then moved away and rented the property from February 2013 for £675 PCM. The tenants have asked to purchase the house for £155,000 and have a mortgage in place.
Do I owe and capital gains and if so how much?
Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Yes you do have a Capital Gains Tax (CGT) liability, but it will be very small, and maybe zero as, for the last eighteen months of ownership, you are deemed to be in residence even if you are not. For the time before you let it out you will be entitled to Private Residence Relief (PRR). PRR is allowed 100% against any gain and is extended by the notional 18 months.
To calculate how much of the gain is subject to CGT you work out the total period of ownership in months. Let us say you sell next month then that would be 41. Then take the period let out less 18 months (see above), 1 month. 1/41 is the fraction of the gain upon which CGT would apply.
To calculate the gain take the purchase price plus all costs and add improvements to give an acquisition price for CGT, say 135K. Then take the net sale price received to get the gain, 155K - 135K = 20K. Now only 1/41 is applicable and this amounts to a taxable gain of about 500 quid. As you have an Annual Exempt Allowance of 11K to offset any gain then the answer in tax terms is a lemon and the taxman will go away empty handed. In addition you would be entitled to Lettings Relief up to 40K, but that seems unlikely to come into play at all.
There is a further loophole for you which you will probably not need. If you moved away for employment purposes then PRR can be extended and if you were living in job related accommodation PRR is further extended to cover that, but I do not think that is going to apply anyway as the chargeable gain is so small.
Just as an aside I was born in Manchester in Nell Lane, Withington so I am a Mancunian. I do hope I have helped set your mind at rest on this matter.
Customer: replied 2 years ago.
Thanks for your answer - I think I get... Had to read it a few times to get it clear!!!
Just one more point... Do I need proof of the improvements? I don't have any receipts but do have before and after photos that show the work I did... I didn't keep any receipts because it never occurred to me I would be in this position...
Manchester is a great city!!!
Expert:  bigduckontax replied 2 years ago.
Also, I believe the wettest in the UK. My mother who was born there in 1905 always told me that this was the case although we moved to Surrey when I was three and only went back to visit relatives over the years.
It would be helpful to have proof of the cost of improvements in the event of a query by HMRC on ultimate sale. If they did try to disallow in the gain might rise to 35K, but 1/41 of 35K is still only 750 quid of gain chargeable to CGT, peanuts in fact. You have a long way to go before it becomes a problem.
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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3599
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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