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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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My wife and I have just sold a rental property. I am

Resolved Question:

Hello,
My wife and I have just sold a rental property. I am higher rate payer, she does not work.
The net taxable gain on the property is £175,041.27
I am unsure what the CGT liability is for each of us.
Scenario 1:
Is the taxable gain for each of us therefore 50% of the above figure (£87,520.64)?
We originally lived in the flat before then buying and moving to a house, at which point we rented out the flat. I've worked out the Private Residence Relief to be 54.45% (or, £47,655). This leaves a remaining taxable gain of £39,865.
Do we each then get lettings relief on this?
If so, then as I understand it we would deduct £40,000 from the remainder, leaving no CGT liability.
Is this correct?
Scenario 2: (Individual tax liability calculated at end.)
£175,041.27 less £95,309.97 PRR leaves remaining taxable gain of £79,731.30.
Less lettings relief of £40,000 leaves £39,731.30.
Split 50/50 leaves each of us with £19,865.65.
Less £11,100 annual CGT exemption, leaves £8,765.65 each.
My wife does not earn anything, so because this figure is below her personal allowance, does she have to pay any tax? Or is CGT treated separately?
I earn at the higher rate, so, does that mean a (28%) tax liability for me of £2,454.38?
Or, have I just got both scenarios wrong?
Many thanks
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Scenario 1 is the right way assuming your calculations are correct. You divide the gain before calculating any reliefs in two. You then work out the main residence relief which includes the last 18 months of ownership even if you were not in residence. Each part owner can get £40,000 of letting relief and that is the lesser of: (a) £40,000, (b) the sum of the gain for the period you lived in the property and the gain for the last 18 months of ownership and (c) that part of the letting period gain not covered by the last 18 months of ownership. If there is any remaining taxable gain, you each have an annual CGT exemption for the first £11,000 of gains you make in the tax year. Look here for information on calculating the CGT rate or combination thereof that you use to work out any liability. HS283 has more on CGT and the main home. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Hello,Thank you for your prompt reply here. Sounds like good news for me then, as it looks like we won't have any CGT liability.Would you be able to clarify a couple of queries for me please?I have calculated the PRR based on the following. Total days owned = 4338. Total days lived in = 1814. Therefore exemption = 1814 + 548 (18 months) = 2362. This gives a PPR of 2362/4338 = 0.5445. Is this correct?For lettings relief, is the lesser of the options you mention above actually (C) then? eg. £87,520.64 x (1814/4338) = £36,598? If so, that would still leave a small liability – but this would then be within the £11,100 allowance, right?Also, I have done only a quick calculation on the net taxable gain. In addition to our recent sale costs, will it be possible to subtract the original purchase costs (legal, survey, stamp duty etc)? And is it possible to subtract a Mortgage Indemnity Guarantee (higher lending fee) that was added to our mortgage when we originally bought? Was c£2,500.Thanks again,
Expert:  TonyTax replied 1 year ago.
Your gain is disposal proceeds less purchase price less purchase and disposal costs (stamp duty, survey fees, legal fees, selling agent fees, local search fees etc). As I said in my answer, b is the sum of the gain for the period you lived in the property and the gain for the last 18 months of ownership (2362 days not 1814 days). I doubt the MIF will be deductible but I don't think you will need it once you have deducted the other expenses and re-calculated the main residence gain, the last 18 months gain and the letting relief. You also have the annual CGT exemption.
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