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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I would be grateful expertise on the following

Resolved Question:

Dear Sir, I would be grateful for your expertise on the following Capital Gains Question relating to property.
• I purchased a 2 bed Flat in 2003 for £160,000, I lived in this flat through till 2013. At this is point life circumstances led me to let the flat out and I rented other accommodation in another area of London.
• In March 2015 – I purchased a second home in Somerset (cottage weekend) – getaway.
• In October 2015 – I purchased 50% of my partners Shared ownership property so we now own the property 50:50. This is my current main residence
However, life circumstances mean that I am considering moving back into the first property I purchased back in 2003, and possibly selling it in the next couple of years.
Or
I may JUST sell the property - in the coming months giving notice to the current tenants.
Given the context above. What would be my potential Capital Gains Liability, If I were to Sell.
• Original Price £160,000 in 2003 – lived in for 10 years
• Rented for 3 years 2013 – 2016
• Current Valuation of similar properties in area £375,000 – so selling for that price in 2016.
Are you able to help?
Thanks
Sivaroshan
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. You would normally use months of ownership as opposed to years but I'll do some calculations and get back to you in a bit.
Expert:  TonyTax replied 1 year ago.
Here are your figures. You can claim the costs of purchase and sale (legal fees, stamp duty, survey fees, selling agent fees, disbursements) against the gain: Total period of ownership to a month in 2016: 13 yearsTotal period of occupation by you: 10 yearsTotal period of letting: 3 yearsGain: £215,000 (£375,000 - £160,000) Exempt gain: £190,192 (£215,000 / 13 x 11.5 (10 years owner occupation + last 1.5 years of ownership regardless)Letting period gain: £24,808 (£215,000 / 13 x 1.5 (3 years of of letting - last 1.5 years of ownership)Total non-exempt gain: £24,808Letting relief: £24,808 (lesser of £40,000, £190,192 and £24,808)Taxable gain £0 (£24,808 - £24,808 ) Take a look here for information on the main residence and CGT:https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank you.
In the event that I choose to move back into the property, in the next few months and declare it as my primary home. It will be within a 3 year period.I may lived there for a few more years but if circumstances dictate and I say sell within say 6 months. Would the above tax liability process still apply or would I benefit from full relief as my main residence?
Customer: replied 1 year ago.
Also to confirm the liability would be taxed at 28% as I am a higher rate tax payer. So in your example 28% of £24,808 (less any costs)
Expert:  TonyTax replied 1 year ago.
You have to make a main residence election within 2 years of acquiring an interest in another property. At present, your 2003 property cannot be your main home while it is let. If you move back in, the longer you stay there will push the letting period back so that less or none of it forms part of the last 18 months of ownership. That may increase your letting relief depending how house prices move and the extra period that you are in occupation will be exempt in any event. Tax rules can and do change so reliefs you get now may not be available in the future. CGT is charged at 28% for a 40% taxpayer but why do you think there will be a taxable gain if you sell after 13 years ownership in 2016 based on the sale price you gave? If you look at my calculations, the bot***** *****ne says "Taxable gain £0".
Customer: replied 1 year ago.
Thank you Tony. I was a little
Confused by the letting relief part and its reasoning. Thank you for clarifying that no CGT is due in this example given the laws as they exist now.
Expert:  TonyTax replied 1 year ago.
Letting relief reduces the taxable gain, in your case to £0. HS283 explains it quite well and example 9 is worth looking at.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15840
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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