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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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We are selling our house 950,000. We bought it in

Resolved Question:

We are selling our house for approx 950,000. We bought it in 1994 for 180,000. From 2000 to 2005 we rented the property out, before returning to it as our main residence. In 2011/12 we moved to another property we own for about 5/6 months and nominated that as our main residence for that period but did not rent out this property.
What would our CGT liability be under these circunstances
Many thanks
Don T
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

If you can let me have the following information, I'll do some calculations:

1 The month in 1994 you bought the house that cost £180,000.

2 Assuming you moved into the property as soon as you bought it, which month in 2000 did you move out and let it and in which month in 2005 did you move back in?

3 Which month and year did you move out for the second time? Did you let it again? If so, for how long? When did you move back in to the first property (month and year)?

4 When (month and year) did you buy the second property?
Customer: replied 2 years ago.

Thanks for the swift response. To answer your questions:

1. We bought the property in November 1994 and moved in that month.

2. We moved out in April 2000 to another property that we bought. We moved back to the first property in May 2005.

3. In Sept 2011 we moved back to the second property until February 2012 but did not rent the first property out. We moved back to the first property in February 2012.

4. We bought the second property in April 2000.

Many thanks

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I do some calculations and draft my answer.
Expert:  TonyTax replied 2 years ago.
Hi again.

You should refer to HS283 here for information on the main home and CGT.

If you sell the property for £950,000 in August 2015 having paid £180,000 to buy it, you will make a gain of £770,000, £385,000 for each of you. 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 the property for 250 months of which you will have lived in it for 189, let it for 57 and it will have been vacant for 4. The following will apply to each of you:

The gain for the period the property was your main home will be exempt from CGT. That accounts for £291,060 (£385,000 / 250 months x 189 months). The remaining non-exempt gain of £93,940 is split as to £87,780 to the letting period and £6,160 to the vacant period.

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, £291,060 and

3 the gain for the letting period, £87,780.

Letting relief of £40,000 will reduce the remaining non-exempt gain of £93,940 to £53,940 and the annual CGT exemption of £11,100 will reduce if further to leave you with a net taxable gain of £42,840.

There are two rates of CGT, 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 that the property is disposed of. If the sale occurs in 2015/16, one of the following scenarios will apply:

1 If the sum of your income and the net taxable gain is £42,385 or less in 2015/16, then all the taxable gain will be charged to CGT at 18%.

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

3 If your income alone is less than £42,385 in 2015/16 but greater than £42,385 when the net taxable gain is added, then part of the net taxable gain will be charged to CGT at 18% and part at 28%.

I hope this helps but let me know if you have any further questions.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks for the comprehensive answer. One final question for clarification - both properties have been held in joint names throughout this period - me and my wife.

Is the gain and relief split 50/50 in this case.

Many thanks

Don Thomson

Expert:  TonyTax replied 2 years ago.
I've assumed that the property is owned 50:50 between you and your wife throughout the period and, therefore, the gain has been split in those proportions.

One thing I should mention, not that it makes nay difference in your case. An election for one property to be treated as a main residence has to be made within two years of there being more than one property available for the owner to use ffor it to be effective.
Customer: replied 2 years ago.
Many thanks for your help. Great service.
Expert:  TonyTax replied 2 years ago.
Thanks.