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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I bought a home in 1995 ,000k and lived in it until August

Resolved Question:

I bought a home in 1995 for 70,000k and lived in it until August 2006. I then moved out and rented it out at 850£ pm.
I now have the house on the market at £325k and I hope to sell at exactly that price.
My wife and I jointly own it and rent it. In terms of othe income I teach full time she teaches very part time! I am now a higher rate tax payer, just!
What is my rough CGT bill?
Thank you, craig
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Have you and your wife been joint owners since you bought the property?
Customer: replied 2 years ago.
Yes, joint owners at all times.
The house price rose significantly betwee 1995 and 2006, (say between £70k and around 270k). Between 2006 and today 2015, it has risen overall but relatively speaking only by smaller percentage points. I wonder if this will make a difference?
Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I do some calculations and draft my answer. It will take a while.
Customer: replied 2 years ago.
Excellent. No problem, no rush. Thank you.
Expert:  TonyTax replied 2 years ago.
Which month in 1995 did you buy the property?
Customer: replied 2 years ago.
We moved in in September 1995, and left in August 2006. Normal income tax has been paid on the rental since August 2006. So most years I have paid a tax bill of around £1000 for both my wife and I.
There has been only minimal improvements made since 2006, a new boiler one year and roof repairs but nothing significant.
Expert:  TonyTax replied 2 years ago.
Thanks.
Expert:  TonyTax replied 2 years ago.
I'm back.

You should refer to HS283 here for information on the main home and CGT, having read this answer.

First off, the value of the property when it was first let is irrelevant to the calculation of the gain which is computed on a straight line basis.

If you sell the property for £325,000 in August 2015 having paid £70,000 to buy it, you will make a gain of £255,000, £127,500 for each of you and your wife. Once you deduct the costs of buying and selling (legal fees, stamp duty, survey fees, selling agent fees etc), the gain for each of you will be lower. By August 2015, you will have owned it for 240 months of which you will have lived in it for 132 and let it for 108. The following will apply to each of you and your wife:

The gain for the period the property was your main home will be exempt from CGT as will the gain for the last 18 months of ownership. That accounts for £79,688 (£127,500 /240 months x 150 months). The remaining non-exempt gain is £47,812 and that covers the period the property will have been let apart from the last 18 months of ownership.

As the property has been both your main home and let, you are entitled to a further deduction called letting relief which is the lesser of:

1 £40,000,

2 the gain for the period that the property was your main home plus the gain for the last 18 months of ownership, £79,688 and

3 the gain for the letting period less that part which coincided with the last 18 months of ownership, £47,812.

Letting relief of £40,000 will reduce the remaining non-exempt gain to £7,812 and that will be covered by the annual CGT exemption of £11,100 which means that you will have no Capital Gains Tax to pay.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.
Thank you. That's great news.
Just one last thing if I may, when the house is sold will I have to use a CGT tax advisor to write to HMRC and explain, / fill in a form, or will a normal conveyancing solicitor deal with this? And can I use your advise to advise them please? Thanks Craig
Expert:  TonyTax replied 2 years ago.
You will need to register for self-assessment using a form SA1 after the end of the tax year during which you sell the property. The tax year ends on 5 April.

The disposal will need to reported on the CG pages, SA108.

I'm not allowed to pick up clients form this site unfortunately. However, if you come back here, ask for me by name and give me the final figures, I will tell you which figures to put in which boxes of page CG2. It's very simple.
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