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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4180
Experience:  FCCA FCMA CGMA ACIS
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My wife and I bought a flat on 6 April 2001 for £46000. Our

Customer Question

My wife and I bought a flat on 6 April 2001 for £46000. Our Legal costs were £434. In 2002 we erected a garage costing £1700 . In 2003 we completely refurbished the flat at a total cost of £15000.It was never used as our main residence and was let out for several periods up until August 2015.
We sold the flat in October 2015 for £96000 incurring Estate agents , Surveyors and legal fees of £2500.
Can you advise what our Capital Gains Tax liability will be.
Thank you
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. It is a great pity that you never occupied the flat as your sole or main domestic residence as by not so doing you loose entitlement to Lettings Relief which is available up to 40K. Still, it is no use crying over spilled milk. Your capital gain is computed as follows. Your selling price is 96K - 2.5K = 93.5K Your acquisition price was 56K + 0.5K +1.7K = 58.2K. The refurbishment is not allowable against Capital Gains Tax (CGT), but is allowable against rental income for Income Tax purposes. You now have a gain of 35.3K, split it in two, 17.65K each. Now deduct your Annual Exempt Amount of 11.1K leaves 6.55K exposed to CGT at a rate of 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the year of sale. Worst case scenario is a tax charge of say 1.8K each. I do hope that I have shed some light on your position.
Customer: replied 2 years ago.
Thank you. I should have mentioned that my wife occupied the flat as her permanent residence from January 2003 to November 2008 as she was working in the area and the marital home was some distance from her place of work. Will this make any difference. Also the refurbishments were done to make the flat more comfortable for her residence.
Expert:  bigduckontax replied 2 years ago.
I am of the opinion that it doesn't help. Spouses only have one tranche of Private Residence Relief PRR) between them and unless you elected to have the flat as the residence to which PRR would apply within 18 months of acquisition the PRR rests with your other home.
But, all is not lost. Your wife spent a substantial time in residence and that opens the door to Lettings Relief (LR) which is available up to 40K so that will almost certainly gobble up the 6.55K of gain exposed to CGT and reduce the liability to nil. You are far better off using the refurbishment costs to offset rental income for Income tax purposes. It is of little use to you in the CGT computation now LR is available.
Customer: replied 2 years ago.
Thank you. So I presume that if there is no tax liability I do not need to fill in the Capital Gains section in our tax returns.
Expert:  bigduckontax replied 2 years ago.
You need to render a SA108 with your self assessment tax return explaining your computation.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.