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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Could you help me estimate the CGT liability on a flat that

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Could you help me estimate the CGT liability on a flat that I own and rent out ? I bought a 50% share in the flat in May 1985 at a cost (incl legal fees etc) of £ 30,500. I bought the other 50% in Oct 1987 at a cost of £37,500. It was my primary residence
until Sep 1990, I rented it out while working abroad and then resumed residency in Sep 1992. I moved out in Jan 1995 and it has been rented out ever since. I would estimate current value of £ 375,000. I am a 45% tax rate payer on my income. Additionally, my
wife is on a low income (£5k pa). If I transfer the property to her, and she then sells, would it attract CGT at the lower rate, or would our income be considered joint ? Or if we moved ownership to joint, 50/50, and then sell, could we both claim a personal
CGT allowance ? It was also my wife's primary residence between May 1993 and Jan 1995. Thank you
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.
When you went to work abroad, were you sent by an existing employer or did you go of your volition?
Customer: replied 1 year ago.
I was sent by an existing employer, who I stayed with when I returned (until Jan 1995)
Expert:  TonyTax replied 1 year ago.
Thanks.
Leave this with me while I do some calculations and draft my answer. It will take a while.
Expert:  TonyTax replied 1 year ago.
Hi again.
As you were sent to work abroad by your employer, you will qualify for main residence relief for the period that you were abroad even if the property was let which it was in that period provided you didn't buy another property to live in at that time. Take a look here for more information:
http://www.hmrc.gov.uk/manuals/cgmanual/cg65030.htm
http://www.hmrc.gov.uk/manuals/cgmanual/cg65040.htm
http://www.hmrc.gov.uk/manuals/cgmanual/cg65046.htm
http://www.hmrc.gov.uk/manuals/cgmanual/cg65047.htm
CGT - SOLE OWNERSHIP
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 for £375,000 having paid £68,000, you will make a gain of £307,000. The costs of buying and selling the property will reduce the gain further (legal fees, survey fees, stamp duty, selling agent fees etc).
Total period of ownership to from May 1985 to December 2015 368 months
Total period of occupation 117 months from May 1985 to January 1995
Total period of letting from February 1995 to December 2015 251 months
Exempt gain £112,622 (£307,000 / 368 months x 135 months (117 + last 18 months)
Non exempt gain £194,378 (£307,000 / 368 months x 233 months (251 - last 18 months)
Letting relief £40,000 (lesser of £40,000, £112,622 and £194,378)
Annual CGT exemption £11,100
Net taxable gain £143,278
CGT @ 28% £40,118
CGT - JOINT OWNERSHIP -YOU
Total period of ownership to December 2015 368 months
Total period of occupation 117 months to January 1995
Total period of letting 251 months to December 2015
Exempt gain £56,311 (£153,500 / 368 months x 135 months (117 + last 18 months)
Non exempt gain £97,189 (£153,500 / 368 months x 233 months (251 - last 18 months)
Letting relief £40,000 (lesser of £40,000, £112,622 and £194,378)
Annual CGT exemption £11,100
Net taxable gain £46,089
CGT @ 28% £12,905
YOUR WIFE
Non-exempt gain £153,500
Annual CGT exemption £11,100
Net taxable gain £142,400
CGT @ 18% on £31785 (£5,721) and @ 28% on £110,615 (£30,972)
Total CGT £36,693
Combined CGT for joint ownership £49,598 (£12,905 + £36,693) This is £9,480 more than you would pay if you maintained sole ownership before selling the property.
SUMMARY
Your wife won't be able to claim any main residency relief or letting relief as the property won't have been her main home during her ownership period unless you move back in for a while and then put it into joint names.
HMRC may challenge any claim to main residence relief for your wife based on your period of occupation as aggressive tax avoidance if you only live there for a few months before selling up. In any event, letting relief will not be available to her as the property won't have been let during her period of ownership. Take a look here for more information:
http://www.hmrc.gov.uk/manuals/cgmanual/cg64950.htm
I hope this helps but let me know if you have any further questions.
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