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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3811
Experience:  FCCA FCMA CGMA ACIS
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I am about to sell a property that I have would have owned

Customer Question

I am about to sell a property that I have would have owned for 13 years and 3 months at date of the vendor's entry.
I lived in the property for 11 years and 1 month, before moving and renting it out.
I need to calculate my capital gains tax.
I know that I need to subtract the amount I sell the property for from the amount I paid
I know that I can deduct fees associated with the sale (agents, surveyors, solicitors)
I know that I can deduct 11,100 as my CGT allowance for the year
And, as a higher tax payer, I know that I multiply this amount by 0.28 to give my final sum
But: I have read that I do not need to pay CGT over the full period of my ownership, nor for the most recent 18 months. Is this true?
If this is the case, then my CGT will be a much smaller proportion than I had anticipated: 7mths/13yrs3mnths = 0.044.
I'd be grateful for advice on this.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
You are correct in your assumption, but first note how the capital gain is calculated. You need an acquisition and a disposal price. The acquisition price is the purchase price plus costs of purchase plus any improvements eg installation of double glazing, central heating, extensions etc, but not routine maintenance (see below). The disposal price is the selling price less costs of sale, advertising, agent's and solicitor's fees etc, Take one from the other to compute the gain liable to Capital Gains Tax (CGT). Now as you occupied the property before rental not all the gain is taxable as for your occupation you are entitled to Private Residence Relief which relieves CGT at 100%. Work out in months the total ownership period (A) [159]. Work out the time rented out plus 18 months as you are deemed to occupy in the last 18 months of ownership even if this is not the case (B). Take B fro A to give C [133]. The ratio of C/A is that proportion of the gain which is not subject to CGT [83.65%]. So take the gain and use a factor of 16.35 to determine the taxable gain. Although you have an Annual Exempt Amount (AEA) of 11.1K to deduct from the gain you alternatively are entitled to Lettings Relief instead of AEA which is available up to 40K depending, of course, on the actual rent received. This final adjusted gain will be taxed, in your case, at 28%. Do not forget that routine maintenance is allowable against rentals during the rental period only for income tax purposes as is the interest element of any mortgage being paid. I do hope that my reply has been of assistance to you in resolving your CGT position.
Customer: replied 2 years ago.

Thank you.

(1) Can you give me more information about the "Lettings Relief instead of AEA which is available up to 40K depending, of course, on the actual rent received" - does this mean that I would have had to have received as much as £40K as rent to be eligible for this?

It seems that I have a choice between the AEA (11.5K) and some other amount relating to the rent I have received - it would be useful to know how I can calculate this other amount. Net of tax and agents' fees, my rent income has only been around £7500.

(2) In determining the acquistion price, I assume that I can include legal fees? Can I include stamp duty?

Expert:  bigduckontax replied 2 years ago.
(1) No, Lettings Relief (LR) is available up to 40K. It depends upon the actual rental received whether it would be of more use than AEA. From your figures I suggest that you are better off claiming AEA at 11.1K and forgetting about LR. (2) You can indeed and stamp duty also. Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 2 years ago.

Can I just ask one more question about the CGT calculation, with some specific numbers, please? I am confused about the 18 months!

period of ownership: 159 months

period of my occupancy: 134

period left empty: 4

rented period: 21

Is the period that I do not have to pay CGT on equal to:

134+18 = 152

or

159 - (18+4+21) = 116

many thanks

Expert:  bigduckontax replied 2 years ago.

No, I have incorporated the 18 months in my calculation for you in my initial answer.

You can forget about the 4 months empty, you are allowed up to 12.

Customer: replied 2 years ago.

Sorry, Keith, I was confused about your initial answer, which is why I have asked for clarification - and I am still confused.

Your initial answer referred to a number (B) that you did not specify, nor indicate how it was calculated. It appears to be 26 months, but I do not know how you calculated this 26 - since you describe it as "time rented out plus 18 months"

Is the period I do not have to pay CGT

152 months or

116 months or

133 months.

If it is 133 months, please let me know exactly how this is calculated, since it doesn't quite make sense to me. I know how to calculate the 152 and 116.

many thanks

Expert:  bigduckontax replied 2 years ago.
I regter you are getting bogged down in detail. I have already computed for you that of your gain only16.35% is liable to CGT less, of course, your AEA. The rest is covered by Private Residence Relief.
Customer: replied 2 years ago.

I am disappointed not to get a direct answer to a direct question about a numerical computation.

Yes, I want the detail. And I have asked (and paid for) a detailed answer. So I want to know how these calculations are derived.

It is not clear to me why "time rented out plus 18 months" = 26 months in your original answer. Once I understand this, then I will understand the 16.35% you have quoted. If I don't understand the calculations, then I am not sure whether I should use this number in my own sums.

many thanks.

Customer: replied 2 years ago.

I think that you made an error in your first calculation, and were not prepared to revisit it when I queried it. I am still left confused about the correct calculations.

Expert:  bigduckontax replied 2 years ago.

Will you please, so that there is no confusion, state the dates during which the property was rented out.

Customer: replied 2 years ago.

The period of ownership was April 2002 to July 2015
I lived there from April 2002 to May 2013
empty period: June 2013 to September 2013
rented period: October 2013 - July 2015

thanks

Expert:  bigduckontax replied 2 years ago.

Let period 22 months less the last 18 = 4, thus only 4 / 159 = say 2.5% of the gain is subject to CGT which may well be covered by the AEA.

Apologies for the original error, I must have had a mental aberation, but it was just before dinner for me and I am an insulin dependent diabetic answering your question from a time zone 6 hours ahead of BST.

Customer: replied 2 years ago.

yes, this means that I will not have to pay any CGT - thank you for clarifying this.

Expert:  bigduckontax replied 2 years ago.

Delighted to have been of assistance.

Please be so kind as to review my rating before you leave the Just Answer site. The current rating seems a tad unfair now we have resolved the matter.

.

bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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