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bigduckontax, Accountant
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My sister owned a flat as her main residence between 18th

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My sister owned a flat as her main residence between 18th April 2011 and 9th November 2012. 1. The property was completely refurbished and remodelled between April 2011 and 29th May; during this period the property was uninhabitable. 2. The property was sold at a gain of circa £150,000, of which £75,000 was paid out to the Project Manager for running the refurbishment project, leaving a net gain of £75,000. 3. She has no dependants and does a lot of travelling around; i.e. she has a somewhat transient lifestyle. 4. During the period of ownership she split her time between various places; some at her parents’ home near Basingstoke, some at her parents’ home in London, regular travel abroad, and the rest of her time at the flat in question. 5. The time that she spent at her parents’ home in Basingstoke is related to her work where, at the time, she jointly ran the family business of breeding and competing event horses with her mother. She has no financial interest in her parents’ home. 6. Because of the fact that she was not at the London flat very often, she decided to let it out on a short-term basis (fully furnished) to earn some extra income, and stayed there in between times, when she was in London. 7. She owns more than one property but did not formally notify HMRC that this flat was her main residence. My questions relate to Capital Gains Tax, Private Residence Relief and also the Letting Relief subsection. This is all covered under HMRC Manual: http://www.hmrc.gov.uk/manuals/cgmanual/CG64200c.htm: 8. Whilst she did not nominate the flat as her private residence to HMRC within the required time limits, on the facts it would appear to have been her main residence as the only other property she owned was a flat that was fully rented out an AST. She has no financial interest in the family homes, so it would appear that they cannot be her main residences under “CG64470 - Private residence relief: only or main residence: an interest in a dwelling house is a requirement” – see: http://www.hmrc.gov.uk/manuals/cgmanual/cg64470.htm. Please comment as necessary. 9. I cannot see in the HMRC manual, referred to above, a specific example relating to my sister’s situation – they all assume a period of occupancy by the owner as their main residence, followed by a period of rent – but I do believe that she is entitled to Private Residence Relief. Please confirm your view, with reasons. 10. Let us assume that PRR does apply, how should the tax be calculated on the £75,000 gain? The property was owned for a period of 571 days, of which 317 days were let out. Regards ***** *****

Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.

Hi Rupert

Thanks for your question - I am Sam and I am one of the Uk tax experts.

I would need to know the actual dates this was her main residence (the time she physically lived there) as this will then form the consideration of any private residence relief due.

Did she conduct all aspects of her life from this London flat (so registered address with HMRC, National Insurance office, bank, dentists, electroral roll, doctors etc - and was council tax paid by your sister throughout the period of ownership?

Did she spenfd any time at the other property - or was let out throughout the period of ownership of this new property (so from April 2011 to 9th Nov 2012)

I also would need the dates that the flat was let out - and clarification that this rental income was declared to HMRC as although your provide total number of days - I need to see how this forms a pattern.

I also need to know about the £75000 paid to the project manager as this seems a large figure for a refurb - perhaps you could also advsie the purchase price, the actual work undertaken and the selling price.

I also have a concern that as this property was sold back in Nov 2012 - has this capital gain ecen been declared to HMRC? Or are they asking after the sale of this property under enquiry?

I can then formally advise the relevant reliefs due (if any)

Thanks

Sam

Customer: replied 2 years ago.

Dear *****,

Please use numbered bullet points in your reply using the same chronological notation as I am using below - this makes it easier for me to cross reference:

Please note:




    1. Purchase of Penywern Rd property: 18/04/11

      • Refurbishment works commenced: 18/04/11

      • Refurbishment works completed enough for her to move in: 30/05/11

      • Date property sold: 09/11/12

      • I did state in my initial query that my sister lived at her London flat on an ad hoc basis, therefore there is no record of the actual dates she lived there. I have, however, stated that the property was let for a period of 317 days and the property was in her ownership for a period of 571 days, leaving 254 days where the property was for her private use. I hope this is sufficient.



    2. She had a residents parking permit, was on the electoral role, had utilities in her name and paid council tax at this property, save for a six month (181 days) period during the 317 days noted above, where the tenant took over council tax and utility bills.

    3. I do not know what you mean when you refer to 'the other property'. Are you referring to the parental homes or her other flat (noted in item 7 of my initial query and named Ongar Rd)? If the latter then she did not spend any time here - this was (and still is) rented out permanently on AST. If the former then, again it was ad hoc.

    4. Please see below list of dates that the Penywern Rd property was rented:

      • 07/09/11 - 31/10/11 – short let

      • 18/11/11 – 17/05/12 – AST

      • 03/06/12 – 14/08/12 – short let



    5. All rental income has been declared to HMRC

    6. Purchase price £594,880

    7. Refurbishment (Capital) Cost: £105,000

    8. Sale price: £920,000

    9. Please note that my sister bought the property and we agreed to do the project together (I was the project manager as I had expertise in this area), but I did not want to hold a financial interest in the property, whereas, at the time, she wanted to keep it as her main residence. She therefore paid me a fee, which reflected half of the overall increase in value as a result of completely gutting and refurbishing the property, which included adding two bathrooms and an additional bedroom. This is why the project management fee was high.

    10. My sister has declared all figures to HMRC and is currently negotiating the tax position with them, hence the need for specialist advice.


Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question. My colleague has opted out so I have picked up the baton.
The refurbishment period can be ignored. She let the property out. The last 18 months of ownership is ignored as she is deemed to be resident even if this is not the case and Private Residence Relief (PRR) is extended accordingly. She only had 18 months ownership. Any gain made is subject to Capital Gains Tax (CGT), but PRR is allowable at 100% so no tax is due.
She should not need to be negotiating with HMRC No CGT is due as PRR applies and she should stick to that position.
I do hope that I have been able to shed some light on your sister's position.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3817
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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