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TonyTax
TonyTax, Tax Consultant
Category: Tax
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I need some advice on the following situation. Bought a House

Customer Question

I need some advice on the following situation.
Bought a House Residential in 1985 for £ 50K
with 3 subsequent loans of £25K 25K and 10K.
In October 2003 the property was re-mortgaged with a Buy to Let of £ 300K leaving an equity of £60K and was rented out until September 2014 when it was turned back into a Residential property and we moved back in.
We now want to redeem the Buy to let and intend to remain in the property for at least the next 3 - 4 years
What is our situation in respect of Capital Gains Taxes?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.Can you tell me which month in 1985 you bought the property please.
Customer: replied 1 year ago.
August 1985.
Expert:  TonyTax replied 1 year ago.
Thanks.
Leave this with me while I so some calculations. It will take a while so please bear with me.
Expert:  TonyTax replied 1 year ago.
Hi again.
You should refer to HS283 as part of this answer:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief
If you sell the property in August 2019, you will have owned it for 408 months of which you will have lived in it for 276 and let it for 132.
We don't know what the value of the property will be in 2019 so I will give you percentages for the taxable and non-taxable parts of the gain unless you give me a projected value.
The gain will be computed by taking the net of disposal costs (legal fees, selling agent fees) sale proceeds and deducting the sum of the purchase price and the purchase costs (legal fees, survey fees, stamp duty etc). Mortgages are irrelevant. What you do with the equity cash you have taken out is up to you but HMRC won't give you a deduction for it against this property. The original mortgage is part of the purchase price so that has been accounted for already.
For joint owners with identical occupation periods (married couples for example), the following will apply to your respective shares of the gain:
If you remain in the house until August 2019, then 67.65% of the gain will be covered by main residence relief (276 months / 408 months). The gain not covered by main residence relief will be 32.35% (132 months / 408 months).
As the property will have been let as well as having been your main home, you will be entitled to a further deduction called letting relief which will be the lesser of:
1 £40,000,
2 the sum of the gains for the period that you lived in the property and for a maximum of the last 18 months of ownership when you may not have been living there if that is the case and
3 the gain for that part of the letting period not covered by the last 18 months of ownership.
See example 9 in HS283 (link above) to see how this works.
Deduct the letting relief from that part of the gain not covered by main residence relief (32.35%).
If any part of the gain is not covered by main residence relief and letting relief, the first £11,100 (the current rate) will be covered by the annual CGT exemption. The balance will be charged to CGT at 18%, 28% or a combination of the two rates depending on whether the sum of the net taxable gain and your income are less or more than the point at which 40% income tax commences (currently income above £42,385). The maximum CGT charge cannot be more than 28% of the net taxable gain.
Be aware that tax rules can and do change and reliefs that are available now may not be in the future.
I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank you very much for this Tony. We'll have to work through information and most probably come back to you with further questions in the near future. You'll hear from us.
Expert:  TonyTax replied 1 year ago.
Thanks.

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