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bigduckontax
bigduckontax, Accountant
Category: Tax
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I jointly own a let property with my ex-wife. It started out

Customer Question

I jointly own a let property with my ex-wife. It started out as our family home in 1988 but and was occupied by us for 2 years. It has been let ever since. We have variously occupied properties as tenants in order to be close to our work. For most of the period we have occupied a flat over a convenience store under a business lease. When I sought advice a few years ago, a chartered accountant referred to it as our principal private residence. The respective ownership shares are self 77% ex-wife 23%.
One possible complication is that my ex-wife now has a shared ownership Housing Association property (owning 40% renting 60%).
I am aiming to sell the property in about 2 years time so it will then have been owned for 30 years and let for 28 of those.
The purchase price in 1988 was £97.000 and projected value is £280,000 in 2 years time.
I expect my marginal tax rate to be 20% at the time of sale.My ex-wife will be in a similar position.
Can you please set out a CGT computation for each of us based upon current law and
the above information?
I expect to sell the convenience store one year prior and anticipate a capital loss. Can you advise whether this can be carried forward for offset against the gain on the let property?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. I presume that on the acquisition of additional property you did not elect as to which Private Residence Relief (PRR) would apply. In such cases HMRC will base the decision as to where PRR will apply on the facts. Clearly Capital Gains Tax (CGT) will apply to the jointly owned let property, 77% to you and 23% to your wife. Furthermore the last 18 months of ownership do not count as you are deemed to be in residence even if this is not the case. Your total ownership period is 360 months and let period 318 months [allowing the last 18]. So 318 / 360 of the gain say 83.8% will be subject to CGT. The gain is 380K - 97K = 193K, but remember that the acquisition price is inflated by buying costs and the selling price similarly deflated. Of the 193K gain 141K falls to you and 52K to your ex wife. Take off 11.1K Annual Exempt Amount (AEA) and Lettings Relief (LR) up to 40K will reduce your ex's CGT liability to nil whilst you will have 141K - 11.1K - 40K = say 81K exposed to CGT. CGT is levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. Worst case scenario is a tax bill of a tad under 25K for you. I do hope that I have been able to shed some light on your position for you. My answer assumes that the pair of you are only entitled to PRR for the first two years plus the last 18 months. PRR transferring elsewhere on letting as surmised by the accountant you consulted.
Customer: replied 1 year ago.
At the tail end of my question I asked whether a loss on the sale of the convenience store I own (including flat above) can be offset against the gain on the let property. I presume the answer is no but could you please confirm.
Customer: replied 1 year ago.
Just noticed you have computed the gain on a projected value of £380,000 whereas the figure should be £280,000
Expert:  bigduckontax replied 1 year ago.
You are dead right, apologies for the error, but actually was small. This reduces the gain to 280K - 97K = 183K. At 83.8% this amounts to say 153K gain, 118K to you and 35K to your ex. With AEA and LR your wife's CGT exposure will be nil whilst yours will be 118K - 10.1K - 40K = say 67K, @ 28% = a little under 19K CGT due, worst case.
Expert:  bigduckontax replied 1 year ago.
Oh yes, and if you make a capital loss on the convenience store accommodation as PRR will apply and it is not an allowable loss and cannot be set against gains elsewhere in the same tax year or carried forward.
I am so sorry to have to rain on your parade.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 1 year ago.
Thank you for your support and deep apologies for my initial error in the reading of the data in your question.

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