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TonyTax
TonyTax, Tax Consultant
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I bought a 2 bed flat in Barnet, Herts, in 1996. I lived there until 2003 - 7 years.

Resolved Question:

Hi. I bought a 2 bed flat in Barnet, Herts, in 1996. I lived there until 2003 - 7 years.
I then moved out of my flat and in with my dad - he owns his house - and am still living with my dad I have been renting out my flat to tenants since 2003. (I have been an official carer for my dad for a year, he is ill).
When my dad passes away, I will sell my above flat to buy a house - (I will inherit some of the value of my Dads house when he dies). Although my flat is the only property I have owned, will I still have to pay CGT on it? I am about to pay £23,000 to extend the lease as its very short. If I have to pay CGT, will the money I have spent on my flat (new lease, maintenance fees etc) be taken into account when CGT is worked out?
I paid £49,000 for the flat in 1996, with the new lease it will be worth about £230,000. If I have to pay CGT when it is sold,(say this year) please tell me roughly how much, if I have spent £50,000 on new lease/maintainance. Thanks very much.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

Can you tell me which month in 1996 you bought the property and which month in 2003 you moved out please. Is the £23,000 part of the figure of £50,000? How much of the £27,000 was spent on improvements to the property as opposed to general repairs and maintenance?

Customer: replied 1 year ago.

Hi.

I bought it and moved into my flat in August 1996 and moved out in March 2003.

Yes, the £23,000 new lease is part of the £50,000 I spent on general maintenance.

I have spent nothing on improvements.

Thanks,Sarah

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I do some calculations and draft my answer.
Customer: replied 1 year ago.

Thank you so much.

My email address is


***@******.***

The site keeps rejecting it, saying its registered to another user - that's me, as I used the service 2 years ago! Very frustrating!

Thanks very much,

Sarah

Expert:  TonyTax replied 1 year ago.
Hi again.

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

None of the maintenance costs can be claimed against the sale proceeds unfortunately. They should have been claimed against the rental income. Again, unfortunately, you cannot claim any relief for having to move into your father's home to look after him.

If you sell the property for £230,000 in August 2015 having paid £49,000 to buy it and having paid £23,000 to extend the lease, you will make a gain of £158,000. You can deduct the costs of buying and selling the property (legal fees, stamp duty, survey fees, selling agent fees etc) which will reduce the gain further. By August 2015, you will have owned the property for 229 months of which you will have lived in it for 80 and let it for 149.

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 £67,616 (£158,000 / 229 months x 98 months). The remaining non-exempt gain is £90,384 and this covers that part of the letting period not covered by the last 18 months of ownership (£158,000 / 229 x 131).

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

1 £40,000,

2 the gain for the period that the property was your main home, £67,616 and

3 the gain for the letting period, £90,384.

Letting relief of £40,000 will reduce the remaining non-exempt gain of £90,384 to £50,384 and the annual CGT exemption of £11,100 will reduce if further to leave you with a net taxable gain of £39,284.

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.
Customer: replied 1 year ago.

Thanks so much, excellent explanation which I will rate as excellent with also a written excellent review!!

Just to clarify, my income will just be £12,000 in tax year 2015/16, so if I understand you correctly, I would be charged 18% CGT on just £39,284 which would be very very approx me having to pay about £8,000 in CGT - have I understood you correctly Tony? Sorry, I am dire at maths. Please just confirm I have read this correctly and I won't ask any more!

Expert:  TonyTax replied 1 year ago.
You add the net taxable gain to your income so that will give you £51,284 (£39,284 + £12,000). Deduct £42,385 and you are left with £8,899. So, £8,899 of the gain will be taxed at 28% and £30,385 will be taxed at 18%. That will give you a CGT liability of around £7,961.02 but it will be less once you deduct the purchase and selling costs from the gain.
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Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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