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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My wife and i brought a small terrace house in 1976 for £5100,

Resolved Question:

my wife and i brought a small terrace house in 1976 for £5100, did some improvements, approx £1000 and installed my parents, charged no rent, they were on low incomes and received full council tax relief. We assumed they could be classified as dependent relatives. the last surviving relative died in 1996 since when the property has been let on short term contracts; all income properly declared to hmrc on self assessment returns. the property was vacated in dec.2014. the property was sold on 5th Aug this year for £97,000.Is there likely to be a capital gains situation?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell me how much the property was worth on 31 March 1982 please. Which month in 1996 did the last surviving relative pass away?
Customer: replied 2 years ago.

Hi,

At this stage I can only estimate the value of the property at £13,000(Nationwide house price index calculator) A proper valuation may take a while.The exact date of the surviving spouse passed away was 26th Feb. 1997.

Regards ***** *****

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 2 years ago.
Hi again.

Provided your parents met the criteria here, you will qualify for main residence relief for the period that they lived there and for letting relief as the property was also let as well as having been their main home.Take a look at HS283 here for more information. As Capital Gains Tax was rebased to 31 March 1982, only the period thereafter is taken into account. When the property was sold you made a gain of £84,000 (£97,000 - £13,000), £42,000 for each of yourself and your wife. You owned it for 400 months (from 31/3/82). It was occupied by dependent relatives for 179 months, it was let for 214 months and it was empty for 7 months. The following figures apply to each of you:

The gain for the period was your parents' home will be exempt as will the gain for the last 18 months of ownership. That accounts for £20,685 (£42,000 / 400 months x 197 months). That leaves £21,315 (£42,000 / 40 months x 203 months).

As the property was the home of dependent relatives and it was let, letting relief is due. This will be the lesser of:

1 £40,000,
2 £20,685 and
3 £21,315.

Letting relief of £20,685 will reduce the remaining gain of £21,315 to £630 and the annual CGT exemption of £11,100 will cover the balance so no CGT will be payable.

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