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TonyTax
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We own the freehold of two adjacent dwellings in one big garden

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We own the freehold of two adjacent dwellings in one big garden in London. We live in one and have let out the other for around sixteen years.
The house we live in is our conversion of an undertaker's chapel. We demolished its workshops and, as self builders, were given repayment of VAT on the labour and materials for it's conversion. It is to be put on the market at a recommended price of
We have made an offer on a freehold property in Wareham, Dorset, and have put our London houses on the market. The two bedroom house that we live in has been valued at £575,000 -£ 600,000. The 4 bedroom house that is let out is valued at £725,000 - £750,000. If the two are sold together, the estate agent recommends an asking price of £1,250,000. How much capital gains tax is to be paid on either house if they are to be sold separately? How much capital gains tax if they are sold together?
Naomi chadwick
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you give me some more history please. Was the property that has been let there along with the chapel when you bought the plot? Can you split the cost of the plot between the hoise that has been let and the house you built? Are the properties registered separately with the Land Registry?
Customer: replied 2 years ago.

The property that has been let out by us has been there since about 1895.

We did not "build" the chapel, we "converted" it into a dwelling. It has been valued at £575,000 - £6000,000. The house that has been let out has been valued at £725,000 - £750,000.

The houses are registered with Land Registry as one heredisement,

Expert:  TonyTax replied 2 years ago.
Thanks.

What was the original price paid for the plot? What did the conversion cost?
Customer: replied 2 years ago.

The cost of the plot when we bought it in1998 was £198,000. The cost of the conversion will take a week to sort out. I have loads of receipts for work carried out and materials so hopefully can do this.

Expert:  TonyTax replied 2 years ago.
OK.

I'll give you an answer based on what I have but the cost of the plot will have to be divided between the two properties.

Whether you sell the properties together or separately, the gains will be calculated individually.

Assuming that you have lived in the converted chapel for the entire period of ownership or you moved in within one year of buying the plot and you sell it within 18 months of moving out, then the gain on that property will be exempt from CGT.

Assuming the property that has been let will never have been your main home before you sell it, then the whole gain will be taxable. The gain will be divided between the owners for tax purposes.

There are two rates of Capital Gains Tax, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year you sell the property. Assuming that it is sold in the current tax year, the first £11,100 of your respective shares of the gain will be tax free and one of the following scenarios will apply to each of you:

1 If your income including the taxable gain in 2015/16 is £42,385 or less, then all the taxable gain will be taxed at 18%.

2 If your income excluding the taxable gain in 2015/16 is £42,385 or more, then all the taxable gain will be taxed at 28%.

3 If your income excluding the taxable gain in 2015/16 is less than £42,385 but more than £42,385 when the taxable gain is added, then part of the taxable gain will be taxed at 18% and part will be taxed at 28%.

Take a look at HS283 for more information on the main residence and CGT.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Thank you. Paragraph 3 applies. So, part of the taxable gain will be taxed at 18% and part will be taxed at 28%.. Can I assume that the two "Parts" are the parts of land and their houses?

Expert:  TonyTax replied 2 years ago.
The two "parts" in scenario 3 are the part of the gain taxable at 18% and the part of the gain taxable at 28%.

As I said in my answer, if you sell the properties together, the figures will need to be split between them. That will include the land which goes with each property.
Customer: replied 2 years ago.

We have read through the Private Residence Relief 2015/16 Paper and we have full relief from paying capital gains tax on the converted house that we live in and its land. Back to your scenario 3 and my question. Am I to understand that we would pay just the 28% of the selling price of the house that we have let out for the last sixteen years.

Expert:  TonyTax replied 2 years ago.

You say that you are covered by scenario 3 so you will pay CGT at 18% on some of the net taxable gain and at 28% on the balance of the net taxable gain. You can never pay more than 28% unless the rate of CGT is increased by the government.

You pay CGT on the net taxable gain (not the proceeds) which is calculated by taking the disposal proceeds and deducting from them the sum of the purchase price (part of the £198,000), legal fees, stamp duty, survey fees, selling agent fees, search fees and other disbursements. You then deduct £11,100 which is the annual CGT exemption for 2015/16 to arrive at your net taxable gain.

TonyTax, Tax Consultant
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Satisfied Customers: 15883
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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