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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I own a leasehold flat in London, bought with my Partner

Customer Question

Hi
I own a leasehold flat in London, bought with my Partner in 1999 for £185,000. My Partners share of the property and the deposit paid was through her Ltd company. When my partner died suddenly, aged 55 in 2002 I inherited the Ltd company and the mortgage was paid off through a mortgage protection policy.
In 2005 I married and moved into my new wife's flat. of which I have no financial share and it is willed to her son from a previous marriage.
Nearing retirement In 2006 I wound up the Ltd Company and had to buy out the company's share in the property, at that time the property was valued at £285,000. CGT was paid.
I now wish to sell the flat, it having been rented during the intervening years and the current tenancy is about to come to an end. It's value now is approx £650,000 and I am anxious to minimise CGT. If my wife dies before me I shall have to buy a new home, as I said my wife's home is willed to her son.
I understand that to avoid CGT the property has to be a primary residence. If I moved back into the flat, how long would it be before it could considered to be my primary residence? or does it not work like that, alternatively could you roughly advise how much CGT would be due.
Best regards
Mac
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Mac, I'm Keith and happy to help you with your question.
The CGT position is complicated. The time it was your main or sole domestic residence plus the last 18 month's of ownership when you are deemed to be in residence even if this is not the case will entitle you to Private Residence relief (PRR) at 100%.
So, what to do? Start by calculating the total ownership period in months. Then calculate your occupation time in months plus 18. The gain liable to CGT is the total ownership less the occupation period over the total ownership period. With me so far, that's just for starters!
To get the correct position you must make calculations for both halves. You acquired one half in 1999 for 92.5K [Item 1]. You acquired the balance in 2006 for 142.5K [Item 2].
For item 1 take the gain 325K - 92.5K = 232.5K, multiply this by the factor I explained earlier to give the amount liable to CGT. For Item 2 the gain would be 182.5K [325K - 142.5K]. The general consensus of opinion amongst experts on this site is that you must move back in for at least 6 to 9 months to establish a primary residency.
There now comes a further complication. The law is quote specific, it states that PRR applies to your sole or main domestic residence. Note the word 'or' not 'and.' HMRC are prone to interpret the law as 'and,' which is not the case. The Inland Revenue withdrew with considerable egg on their faces when they attempted to deny PRR to servicemen occupying married quarters when selling their own homes, their sole or main domestic residences, on the grounds that the married quarter was their sole etc. They had even persuaded the Ministry of Defence to publish a Defence Council Instruction on the subject which had to be hurriedly withdrawn on the intervention of a lowly Captain who was cognisant with the law and serving in Nepal at the time!
From which we may deduce that the Item 2 might escape CGT altogether. Item 1 would be subject to CGT on the proportion of the gain as I have indicated, Lettings Relief up to 40K would be available to offset the gain which would then be taxed which would then be levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
Got it? Simple as the Mercat in the TV advert would say!
I suggest that your case is so complex and there is so much at stake here that you would be well advised to instruct a trusted, local professional to negotiate with HMRC in this matter. there is too much at stake to try to go it alone.
I do hope I have helped shed some light on this rather complex situation in which you find yourself.
bigduckontax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thank you Keith

Yes very complicated, I will do as you suggest and contact a local tax expert.

Cheers

Mac

Expert:  bigduckontax replied 2 years ago.
Delighted to have been of assistance.
Thank you for your support.

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