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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I owned a property with my sister that we recently sold

Resolved Question:

Hi I owned a property with my sister that we recently sold and i need some cgt advice?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Can you give me some detail please.
Customer: replied 1 year ago.
My sister and I bought the property in 2009 for £350k, i owned 60%, she 40%, it was our first and only property
She lived in it and rented out to a further 2 friends, the rent from the 3 of them cleared the mortgage almost exactly. I was in the Army
We sold the front room and the basement below it to a developer who turned it into a 1 bed flat. this was Jan 2015 and sold undeveloped for £130k. The remaining 2 bed we sold in May 2015 for £615k
What if any CGT implication is there?
Expert:  TonyTax replied 1 year ago.

Thanks.

Which month in 2009 was the property bought? Was the property two flats or one house when you bought it? Did you ever live in it yourself? Was your sister in occupation for the entire period that she owned a share of the property? Where were you living whilst you were in the Army? Were you abroad during any of that time?

Customer: replied 1 year ago.
Thanks
Bought in April 2009
She lived in it until Dec 2013 when it then became empty and she moved to Dubai.
I was in the Salisbury, South Wales and Afgahnistan on and off until Aug 2011 when I lef the Army. I did not live in the property but rented elsewhere in London when I left.
The property was bought as one 3 bed ground floor flat with an empty basement, it was split ultimately into seperate 1 and 2 bed flats
Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 1 year ago.

Hi again.

The fact that you sold the property in two different tax years complicates matters. You will need to split the £350,000 cost between the part sold to a developer for £130,000 and the part sold for £615,000.

YOUR SITUATION

You were living in job related accommodation. Unless you can satisfy HMRC that you had an intention to live in the property, then your share of each gain will be chargeable to Capital Gains Tax. Take a look at CG64555 below for more information:

http://www.hmrc.gov.uk/manuals/cgmanual/cg64555.htm

The fact that you didn't move into the property after you left the Army would almost certainly preclude a claim for exemption from CGT for the period from August 2011 to the disposal dates. If you can convince HMRC that it was your intention to move into the property but your plans changed in August 2011, then you will be entitled to main residence relief for the period April 2009 to August 2011, to letting relief and relief for the last 18 months of ownership. Take a look at HS283 below for information on the main residence and CGT:

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief

As I said at the start of this answer, you will need to split the cost of £350,000 between the two properties which a property agent may be able to do. I'd then suggest you have an accountant or tax adviser act for you in dealing with HMRC if you decide to make a claim for main residence relief for part of your share of the gain as described above.

YOUR SISTERS SITUATION


Your sister will be entitled to exemption from CGT for her share of the gain from the disposal of the part of the property sold for £130,000 by reason of the fact that she was non-UK resident when it was sold.

From 6 April 2015, non-UK residents can be liable to CGT in the UK on gains made from the disposal of UK residential property as you will read here:

https://www.gov.uk/capital-gains-tax-for-non-residents-uk-residential-property

As far as the second sale is concerned, she has several choices. She can use the value of the flat (40% of it) as at 5 April 2015 as her cost for CGT purposes and ignore the record of occupation prior to 6 April 2015. Given that the flat was sold in May 2015, its unlikely that she will have a taxable gain. I cannot see that the other methods that can be used to calculate the gain in the link above will be to your sister's advantage.

The date of exchange of contracts is the tax point for most property sales so if that was prior to 6 April 2015, your sister's tax position will be that her share of any gain from the second sale will be tax free by reason of her being non-UK resident unless she returns to the UK within five years of leaving.

Assuming that contracts were exchanged after 5 April 2015, then your sister should have reported the disposal to HMRC because she is non-resident regardless of whether any tax is due as it says in the notes under the heading "Reporting and paying Capital Gains Tax".

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

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