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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4094
Experience:  FCCA FCMA CGMA ACIS
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In 1990 my wife and I converted a derelict barn next to our

Customer Question

In 1990 my wife and I converted a derelict barn next to our house, which we had owned since 1976, as a granny annexe for my wife's parents.The planning permission defined it as that. After they died we chose to sell our house and move into the barn (in 2002), having organised its separation via a CLUED when we encountered difficulties with the planners.
We are now older and minded to move in with one of our daughters. However, it has been suggested that the sale of our current house, the former barn, will attract considerable CGT. It is very difficult to work out how much that may be, mire particularly on what basis it may be calculated. I could give you figures, if that will help.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
When did your parents first occupy the annex? Once I know this I will be in a better position to advise you.
Customer: replied 2 years ago.

In 1990, until 2001. We obtained the CLUED in July 2001.

Expert:  bigduckontax replied 2 years ago.
You will be liable for Capital Gains Tax (CGT) for the period the building was occupied by your parents and also for the period of dereliction. Thereafter you were in occupation and entitled to Private Residence Relief which is allowable at 100%.
So take the period 1990 - 2001, 11 years; Take the total ownership period, say 38 years. Your CGT liability will be based on the gain on disposal multiplied by a factor of 27/38, say 71%. The gain is computed by taking the purchase price plus costs of purchase plus any improvements to derive an acquisition price. Take the net selling price, deduct the acquisition price and multiply by the factor to derive the gain liable to CGT.
I do hope that I have been able to shed some light on your position.
You will be entitled to Annual Exempt Amount (AEA) of 11.1K to deduct from the gain in the year of sale. If the property is jointly owned then the gain is half each and you both get an AEA. If your parents paid rental then you may be entitled to Lettings Relief up to 40K, but you must have occupied the barn before their occupation.