How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask TonyTax Your Own Question
TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
13905389
Type Your Tax Question Here...
TonyTax is online now

My partner & I bought an investment property in 1988 which

Resolved Question:

Hi,
My partner & I bought an investment property in 1988 which is divided into 2 flats for £100k in joint names. We lived in the lower flat for 6 years with the upper flat rented out and then moved out & let both flats, our house being in just my partner's name. We are now considering selling the original property which has been valued at £320k but are concerned about our capital gains liability. Our accountant has discussed the possibility of the lower flat becoming my main residence again for 18 months which he says would negate the CGT on the lower flat. He also suggested valuing the lower flat (which is slightly bigger with a garden) at say>60% of the value of the property to further reduce the liability for the upper flat. I am on a salary of £22k, my partner is not working, we remain unmarried. I would be grateful for your calculation of our liability, a second opinion about the advice I have received & any further suggestions. Thankyou
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you let me know which month in 1998 you bought the property. When exactly did you move out (month and year)?
Customer: replied 2 years ago.

We exchanged contracts for the property on 6/4/1988, moved out in June 1994

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.

Hi again.

I'm assuming that the flats have been more or less continuously let since you moved out of the building.

If the values of the flats are manipulated artificially and HMRC find out, they won't be best pleased. They do look at property transactions closely and sometimes ask the District Valuer to carry out their own valuations.

Given that the lower flat was your main home, you will automatically qualify for the gain for the last 18 months of ownership to be treated as exempt from CGT so there would seem to be little point in moving back in. The following figures are for each of you assuming you don't move back into the lower flat:

LOWER FLAT SOLD FOR £192,000 SEPTEMBER 2015


Total period of ownership 330 months

Gain £66,000 (£192,000 - £60,000 / 2 )

Exempt Gain £18,600 (£66,000 / 330 x 93)

Non-exempt gain £47,400 (£66,000 / 330 x 237)

Letting relief £18,600 (lesser of £40,000, £18,600 and £47,400)

Taxable gain £28,800 (£47,400 - £18,600 letting relief)

UPPER FLAT SOLD FOR £128,000 SEPTEMBER 2015

Gain £44,000 (£128,000 - £40,000 / 2)

Taxable gain £44,000

SUMMARY

You each have taxable gains of £72,800 (£28,800 + £44,000). The first £11,100 of gains you make in 2015/16 will be tax free so you will each be left with net taxable gains of £61,700. 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 2015/16 assuming that is when the flats are sold.

Of the basic rate tax band which is £31,785, £20,385 of yours will be used to tax £20,385 of your net taxable gain. The balance of your net taxable gain of £41,315 will be taxed at 28%.

Of the basic rate tax band which is £31,785, £31,785 of your partner's will be used to tax £31,785 of their net taxable gain assuming they have no income in excess of the personal allowance in 2015/16. The balance of their net taxable gain of £29,915 will be taxed at 28%.

You could move into the upper flat for a period (I'd say a year at least) and then claim relief from CGT for the last 18 months of ownership and some letting relief to reduce the gain on that property. However, if HMRC thought that the last 18 months relief and letting relief were your motivation for moving back in, they could deny you those reliefs.

Take a look at HS283 for more information on the main residence and CGT.

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

TonyTax and 2 other Tax Specialists are ready to help you