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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Inhale rented out my house years. I didn't purchase

Customer Question

Hi inhale rented out my house for seven years. I didn't purchase it to rent it was my house that I lived in with my children but when my partner and I had a sm it was not big enough. Unfortunately I bought it in 2007 and when I tried to sell the house prices had slumped and as I was now in negative equity had no choice but to rent. In 2010 the house began to subside, insurance company carried out all the tests and miniored etc before deciding this year that it was no longer habitable. My recents moved out and I paid the mortgage myself. The insurance then paid a lump sum towards my montage and I sold the house at auction to clear the outstanding mortgage. Will I have to pay tax as this was my only house, the house we live in is owned by my partner. Thank you
Submitted: 11 months ago.
Category: Tax
Expert:  Sam replied 11 months ago.
HI Than ks for your question There will be a need to review whether capital gains are due - but it may prove that the outcome is NIL. The review needs to take place as there was a period of time that this was not your main home, so private residence relief (which is awarded for the time you lived there plus the last 18 months) does not cover the whole period of ownership but may be due private lettings relief.So please advise 1) what month in 2007 did you purchase and how much for 2) What month and year did you move out3) Did tenants continue to rent this property even when it started to subside in 2010 and when did they eventually move out4) Did you at any time move back into the property5) was the subsidence work carried out to put the property back into a habitable state 6) When was the property sold at auction and how much for7) Did you declare all rental income to HMRC Thanks Sam
Customer: replied 11 months ago.
Hi SamI bought the house in May 2007 for 118800.
I moved out in October 2008.
Yes they stayed as it had been promised by the insurance that they would fit it but they eventually decided it would cost too much to fix and paid out a lump sum.
The tenants moved out in April 2015
House went to auction and sold in September 2015
The insurance money was 108500 I sold it at auction for 43000.I moved in for 2 and a half months in May 2015 as I was worried about the house being empty but our family stayed in my partners house . I moved out again I felt the house was unsafeThank you
JoCurrently my self assessment stands at a loss of 11500 that's without this years return if you need to know that so yes I have declared all to hmrc
Customer: replied 11 months ago.
I forgot to say I earn 13000 per year if that makes a differenceJo
Expert:  Sam replied 11 months ago.
Hi Jo Thanks for your response and the additional information. The losses you advise re your self assessment I assume are to do with rental income ? And I assume you just claimed the interest element of the mortgage against the rental income and NOT the whole mortgage payment (as only the interest element is permissible) But assuming this is a genuine loss it cannot be usd against the capital gain position - only other earned/trade income. So the capital gain positionYou bought for £118800 and then received £108500 Insurance and also sold for £43000 so made a profit of £32700 You owned this property from May 2007 and sold Sept 2015 - so owned for 100 monthsThe private residence relief you are awarded from May 2007 to Oct 2008 and again from May 2015 to Aug 2015 and from Aug 2015 to the sale date Sept 2015 so a total of 21 months So Private residence relief applied against the gain of £32700 x 21/100 = £6867This leaves a profit of £25833 Then private lettings relief is considered which is the lesser of1) The amount of gain on which private residence relief is due - so £68672) the amount of gain left over after private residence relief has been applied - so £25833 OR3) £40,000 So the lesser amount is 1) The amount of gain on which private residence relief is due - so £6867 and this is deducted from £25833 - which leaves a final gain £18966Then the first £11,100 is exempt - as this is the annual exemption allowance - so this leaves a final chargeable gain of £7866 and if you are a higher rate taxpayer this is charged at 28% = £2202.48 and if you are just a basic rate taxpayer and have enough unused basic rate band then the charge will b at 18% = £1415.88 or somewhere in between if you have less unused basic rate band than the chargeable gain (as then some is liable at 18% and the remainder at 28%) And as you have just advised me that you earn £13000 a year then the gain will be charged at 18% so your capital gain tax bill will just be £1415.88 You just declare the capital gaon on the 2016 self assessment (after 05/04/2016) and will have to pay this bill no later than 31/01/2017 Let me know if you need any further assistance Thanks Sam
Customer: replied 11 months ago.
Thank you that's made me feel better . Just quickly if that's ok? the garden at the house was large so I split it in half and kept the back part what tax percentage would I pay on that its likely to fetch 20 to 30k at sale.
Thank you
Jo
Expert:  Sam replied 11 months ago.
Hi Jo I have sent you an additional services request for the new question asked (as per Just Answer policy) Thanks Sam

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