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bigduckontax
bigduckontax, Accountant
Category: Tax
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I bought a property in 1980 £34,000. It consisted

Customer Question

I bought a property in 1980 for approx £34,000. It consisted of two terraced house converted into 5 flats. I have been living in one flat and letting out the others. I have now had one of the flats I let out valued at £450,000. I mam aware that tapering relieve is no longer available and would like to know my potential tax liability
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts om Just Answer and pleased to be able to assist you with your question. Before I can proceed, however, I need some additional information. Firstly, did you ever live in the flat you have just had valued and presumably are thinking of selling. Alternatively, are you thinking of selling other flats too. Finally, what has been the cost of firstly the initial conversion and also any subsequent improvements eg installation of double glazing, central heating, extensions etc, but not routine maintenance which is allowable against rental income for Income Tax purposes. One I know this I can have a stab at estimating your possible Capital Gains Tax (CGT) liability on the sale of your flat)(s). For the flat you live in as your sole or main domestic residence you are entitled to Private Residence Relief (PRR) which relieves CGT at 100% and is given automatically by HMRC on disposal. The ball is now back in your court!
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts om Just Answer and pleased to be able to assist you with your question. Before I can proceed, however, I need some additional information. Firstly, did you ever live in the flat you have just had valued and presumably are thinking of selling. Alternatively, are you thinking of selling other flats too. Finally, what has been the cost of firstly the initial conversion and also any subsequent improvements eg installation of double glazing, central heating, extensions etc, but not routine maintenance which is allowable against rental income for Income Tax purposes. One I know this I can have a stab at estimating your possible Capital Gains Tax (CGT) liability on the sale of your flat)(s). For the flat you live in as your sole or main domestic residence you are entitled to Private Residence Relief (PRR) which relieves CGT at 100% and is given automatically by HMRC on disposal. The ball is now back in your court!
Customer: replied 1 year ago.

No, I have never lived in the flat I am thinking of selling however, my mother livid in the flat since about 1985 and didn't pay rent for about 10 years. She then paid a lower than commercial rent until 3 years ago since when it has been let on a commercial basis.

Yes I am thinking of developing all the other flats to a higher standard and then selling them off one by one.

Since buying the flats I have spent approx £150,000 on capital improvements.

Thanks, ***** ***** aware that I won't pay CGT on my principal private residence.

Over to you!

Expert:  bigduckontax replied 1 year ago.
Wow. another spanner in the works; time for the backs of envelopes! This answer is specific to this one flat. Yes taper relief is gone, but compensated for by a general reduction in CGT rates across the board.
As you Mother occupied before 5 April 1988 you are entitled to Dependent Relative Relief which will substantially reduce the CGT position. When did your mother finally vacate, please?
Customer: replied 1 year ago.

My mother vacated in 2012 to go an live in "sheltered" accomodation

Customer: replied 1 year ago.

This is all taking far too long. I do not wish to proceed and as you have given me no useful information I would like my £36 refunded in full.

Thanks

Expert:  bigduckontax replied 1 year ago.
Right, off we go, remember my answer is specific to this one flat.
Acquisition price was 34K + 150K = 1894K / 5 = say 35K
Selling price is 450K, but the costs of selling can be net out as can the acquisition price be inflated by purchase costs. Small point, but might save the odd bob or two.
450K - 35K = 415K capital gain.
However Dependent Relative Relief (DRR) applies for 1980 - 2012 and furthermore the for last 18 months of ownership you are deemed to be in residence and PRR extended even if this is not the case.
Your total ownership period is calculated in months, say 408 months. DRR applies for 384 months plus the 18 = 402 months. 408 - 402 = 6 and 6/408 = 0.147 of any gain liable to CGT, in this case say 6K. As you have an Annual Exempt Amount (AEA) of 11.1K no tax will be due unless you have gains elsewhere.
You appear to have hit the jackpot on this flat; for the others the gain will be of the order of 415K - 35K = 380K @ 96% [after the 18 month allowance] 363K per flat which will be taxed at 18% or 258% or a combination of the two rates depending on your income including the gain in the tax year of sale. Worst case scenario is 101K per flat, ouch! You may be entitled to Entrepreneurs' Relief (ER) which limits the tax to a flat 10% as you are going out of this business. This would reduce your exposure to a tad over 36K, not to be sneezed at. You claim ER on your self assessment tax return for the tax year of sale.
As you never lived in these flats you are not entitled to Lettings Relief, but you always have your AEA to offset any gain each year.
Simple, as the Meerkat in the TV advertisement would say; confused you will be!
I do hope that I have been able to shed some light on your position.
I have given you an enormous amount of information. Rome was not built in a day, you know.

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