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bigduckontax, Accountant
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we bought and renovated a semi-det 2 bed cottage in Essex

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Hi we bought and renovated a semi-det 2 bed cottage in Essex for £22,000 in 1993 now to go on market for approx. £265 we have a joint mortgage left on it of £99k - how much capital gains tax do we pay so what will we be left with if we sell it please. Thanks Sharon
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Sharon, I'm Keith and happy to help you with your question.
I have assumed that this cottage was never your sole or main domestic residence. Also the mortgage is irrelevant in the tax computation
The Capital Gains Tax (CGT) due is computed as follows. Take the purchase price plus costs plus improvements (refurbishment, extensions, installation of double glazing, central heating etc to derive an acquisition price. Take the net selling price (after selling costs), deduct the acquisition price and that is the gain subject to tax, half each. From this deduct your Annual Exempt Amount (AEA) of 11.K and the balance is your individual gain taxed at 18% or 28% or a combination of the two rates depending on individual income including the gain in the year of sale. Worst case scenario is as follows 265K - 22K - 22.2K = say 221K @ 28% = say 62K tax due, half each.
So you would be left with 265 - 99 - 62 = 104K between you.
But soft, if you let this cottage out you would be entitled to Lettings Relief of up to 40K instead of your AEA. Furthermore if you let it out as a Furnished Holiday Lettings you might be entitled to Entrepreneurs' Allowance which would limit you tax to a flat rate of 10%. The rules for this are quire complicated and can be found here:
https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2015
something for a wet Sunday afternoon read.
That in very basic terms is your situation viz a viz CGT. I do hope I have assisted you with your inquiry. Please ask any follow up questions should you need more detail.
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Customer: replied 2 years ago.

Thank you that's great Keith - actually it was our main residence from 1993 to 1997 and we must have spent over £100k renovating it - but no longer have receipt to prove so?

Expert:  bigduckontax replied 2 years ago.

All change then, this alters the whole position. Only the period in which it was not your main residence is relevant. Work out your total ownership time in months, say 384 months. Work out the non occupational and deduct 18 [you are deemed to be in occupation for the last 18 months even if this is not the case]; say 336. Thus 318/384 of the gain is subject to CGT, say 83%. Not much, but better than a poke in the eye with the proverbial sharp stick; reduces your worst case to say 51.3k tax due (say 26K each).

Thank you for your support.

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