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TonyTax
TonyTax, Tax Consultant
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I purchase my council house in 1987 lived in it until 2001

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I purchase my council house in 1987 lived in it until 2001 when I rented it out and moved in with my partner I changed to a buy to let mortgage in 2005 and continued to rent
I have broken up with my partner and am without a home currently staying with my daughter I would like to sell my property and buy a place near her if at all possible but the accountant that oversees the tax I pay on the rental property says I am liable to capital gains tax to the tune of £8000 this I cant understand as the property has been valued at 119,000 liable to sell at between £110000 and £112000 I have never owned another property or had a named interest in any other property so to recap I purchased the property for just under 20,000 lived in it for 14 years and its been rented out for 14 years can you tell me if the figure of £8000 in capital gains is correct.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Can youi tell me how much the property cost when you bought it please.
Customer: replied 1 year ago.

as I said in my e-mail just under £20,000 I think it was £19,950

Expert:  TonyTax replied 1 year ago.
My apologies. I didn't see that initially.

Leaver this with me while I draft my answer.
Expert:  TonyTax replied 1 year ago.

Hi again.

You should refer to HS283 here as part of this answer. A property gain will normally only be completely tax free if you live in for the entire period of ownership. The last 18 months of ownership is always given as a tax free period when a property has been your main home.

f you sell the property for £120,000 ( a bit higher than you value it at for illustration purposes) having paid £20,000 to buy it, you will make a gain of £100,000.

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 £55,357 (£100,000 / 28 years x 15.5 years). The remaining non-exempt gain is £44,643 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, £55,357 and

3 the gain for the letting period less that part which coincided with the last 18 months of ownership, £44,643.

Letting relief of £40,000 will reduce the remaining non-exempt gain to £4,643 and that will be covered by the annual CGT exemption of £11,100 which means that you should have no Capital Gains Tax to pay. Your accountant has missed letting relief.

It's normal to calculate the taxable and non-taxable parts of the gain using months as opposed to years for more accuracy.

I hope this helps but let me know if you have any further questions.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15846
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Expert:  TonyTax replied 1 year ago.

I have to go out for a short while but I will be back in about 30 minutes in case you have any further questions.

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