Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
If you acquire a second property then you have two years in which to declare to HMRC which residence is to be your sole or main domestic residence for the purposes of Private Residence Relief (PRR). If this is not done then HMRC will make the decision as to which is the main residence based on the facts.
I would suggest that in the scenario set out HMRC would be perfectly correct in allocating the PRR to the new property. Thus on the sale of the old house any gain made would be subject to CGT. The value of any property for CGT purposes is deemed to rise equally with time. We all know that this is not actually the case, but that is how it works.
If you do have to pay CGT on the old house the formula is as follows. Take the net selling price. Deduct the purchase price plus buying costs plus any improvements eg installation of double glazing, central heating, extensione etc. Then take one from the other to derive a gain on disposal. Now take the total ownership time in months [A]. Take the occupation time ditto and add 18 (you are deemed to be in occupation for the last 18 months even if this is not the case) [B[. Deduct B from A [C] and the ratio of C over A is the proportion of the gain which will be subject to CGT, half each. You also both have an Annual Exempt Amount (AEA) of 11.1K to offset this gain.
CGT is levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale. In view of the relatively long ownership period of the first house the amount exposed to CGT (15%) and your AEA it should not be that onerous and, remember, the gain is half each assuming that you were Joint Owners with your spouse.
Simple, as the Meerkat in the TV advert would say! I cannot tell you how much without quantative data, sorry.
I do hope that my response has been of some use in solving your CGT conundrum.
Thank you for your reply, after my calculation the figure I get is 16. This, I presume, is a £16,000 gain?
Do we need to still nominate or is this to late,will it make any difference?
Well, theoretically you ate out of time, but you never know, HMRC might still accept tyhe election. They can only say no.
If you are coming up with 16, if that is the total gain then it is split between the pair of you and is below your AEA so there will be no CGT. If it isn't and it is 16K each then your individual liability will be GBP 1672 tax, worst case assuming tax at 28%.
Thank you Keith, You have been a great help we are now clear on what action to take , best £38 we have spent in a long time.
Delighted to have been of assistance
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