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We're about to sell a second home (holiday let cottage) for

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We're about to sell a second home (holiday let cottage) for £340k. We purchased the property in 1995 for £60k and immediately spent £40k on renovations. Over the years we have installed new kitchens, floors, damp proof, central heating etc and spent in the region of £60k. Much of this work was done many years ago so we do not have invoices for it all.
Over the 19 years we have owned it the property has been in my sole name for 9 years and joint names (with my wife) for 10 years. It's currently in both our names. My wife is a housewife and I'm a top rate tax payer.
What is the estimated CGT we will have to pay and are there any allowances we can use?
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.

Hi

Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer.

You advise that this was a holiday let - but so I can establish if further tax reliefs are due can you advise whether the following remit has been met for this tax year (and last tax year 2013/2014)

1 The availability condition (availability test/threshold) – during the period

the accommodation is available for commercial letting as holiday accommodation to the public for at least 210 days (140 days for 2011–12 and earlier).

2 The letting condition (occupancy test/threshold) – during the period

the accommodation is commercially let as holiday accommodation to the public for at least 105 days (70 days for 2011–12 and earlier).

3 The pattern of occupation condition – the accommodation must not

be let for periods of longer-term occupation for more than 155 days during the year.

if this remit is met - then whilst the capital gain position is the same to calcualte - the charge is only 10%

So the gain is the sale price less the purchase price - which is £280,000 less costs to buy and sell (so legal and any state agent fees) less the capital improvements - you advise that you spent £60K - but without the invoivces or evidence of the spend - then this cannot be claimed - so you may wish to try and see if you can find any evidence of the spends.

Then the remianing gain is split 50:50 between you and your wife and you each have the first £11,000 exempt (the annuale xemption allowance) and any remining gain is then charged as follows.

If this can be treated a genuine furnished holiday let to the date of sale then 10% capital gains (under the entreprenuers relief charge) and if not

Then you as a higher rate taxpayer will have your share of the gain at 28% and your wife can have the first £31865 of the gain at 18% and furtehr gain at 28%.

You should alert HMRC to the sale once it has finalised, so that they are aware of the declaration you are to make, and so they can arrange to set your wife up within self assessment so she can declare her half share.

The fact you have swapped the splits ofownership over the years has no bearing -

Let me know if you wish any clarification on my response

Thanks

Sam

hen10%
Customer: replied 1 year ago.

Hi Sam

Thanks for the prompt answer. Can I clarify a few points.

Yes the cottage meets the criteria for letting and has been let through a holiday let company for the last c8 years and by ourselves before that.

So in that case its only at 10% (entrepreneurs tax relief) - any other conditions?

On the receipts point for the work I understood that receipts were only required for work within the last 7 years. Is this correct or are there any circumstances where the we can allow for the costs in the calculation.

Finally, just for info, we also own some buy to let properties (as opposed to holiday let) does the entrpreneurs relief apply in the same way?

thanks

Paul

Expert:  Sam replied 1 year ago.

Hi Paul

Thanks for your response and the additional information.

Yes - then its 10% capital gains - no other remit needed, but I have added the link for the FHL helpsheet that provides the full overview of this topic

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323821/hs253.pdf

And the basis on which this then qaulifies for Entreprenuers relief

https://www.gov.uk/entrepreneurs-relief/eligibility

And this is becausse FHL is treated as a tarde rather than rental income (thats why the remit is so trsict with the rental periods etc)

No receipts only ned to be kept as a rule for income tax purposes for 3 years (it was 7) but this is capital expenditure we are now refering to and not day to day expenditure - so receipts for capital expenditure need to kept for the duration of the property ownership (or how can you provide details of those costs and when that arose and how much for - and you could not, as I am sure you can appreciate be permitted to guess themt!)

No buy to lets are just normal rental income so do not attract entrepreurs relief.

Let me know if you wish me to expand on any element of the answers provided, but it would be appreciated if you could rate the level of service I have provided, as this ensures I am credited for my time by Just Answer.

Thanks

Sam

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Category: Tax
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