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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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I would like to get advice on capital gains tax on our 2nd property. It was rented up to e

Customer Question

I would like to get advice on capital gains tax on our 2nd property. It was rented up to end of january 2016. It was our main property from November 1998. We let the property from November 2006. We want to sell it but we would like to move in the house for few months temporarily before we sell it whilst our main home being worked on. Will this benefit us in reducing our CGT? Or will it have opposite affect? And is it true that if we want to sell the house, it is better to do it before April 2016? Thank you
Submitted: 11 months ago.
Category: Tax
Expert:  Sam replied 11 months ago.
Hi
Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer.
Moving in does not change the capital gain position that has been created and as you get the last 18 months as Private residence relief along with the actual time it was your main residence, this would be a pointless exercise.
But as you need to move back in whilst your own home is being worked on - you will just get the last 18 months as partly due to extension of the relief and part due to the fact it will become your main residence (although note you have to move all aspects of your life there)
And it makes no difference when you sell there are no changes of legislation that will affect your circumstances - it will be the usual position - the only thing that changes is an increase in the annual exemption - which has risen from £10,000 tax free to £11,100 tax free.
Thanks
Sam
Customer: replied 11 months ago.
How do we know how much capital gain tax we have to pay on this property? We bought it in Nov 1998, rented nov 2006 and to be sold for example June 2016. Thank you
Expert:  Sam replied 11 months ago.
Hi
You will need to calculate that with the information you hold
So sale price less purchase price forms the inertial gain
From the initial gain you can deduct the costs to buy and sell (so estate agent fees, any stamp duty and legal fees)
Also you can deduct any capital improvements made
Then form this new figure you apply tax reliefs
First private residence relief which is the time you lived there plus last 18 months of ownership/total period of ownership x gain
This figure then established what part of the gain is exempt
Then as you also let the property out (and this assumes you declared all rental income to HMRC and rented it out for the whole period from when you moved out to date of sale - so some adjustment may be needed) and it had been your main property - then private lettings relief
This is the lessor of
1) The amount of gain left over after private residence relief has been applied
2) The amount of gain on which private residence relief is due OR
3) £40,000
This is awarded once if a single ownership or twice of the property is in your joint names
This is then deducted from the last gain figure and what is left over is the chargeable gain.
Of course then the first £11,000 (if sold before 05/04/2016) or first £11,100 if sold after 06/04/2016 (again twice if the propriety is in joint names)
Then each of you declare your share of the gain and are liable to capital gain tax.
If a higher rate taxpayer the gain is liable at 28%
If a basic rate taxpayer - then unused basic rate band at 18% and any remaining gain at 28%
If the property is sold before 0504/2016 then this is declared on the 2016 self assessment with the tax due to HMRC no later than 31/01/2017 - and if sold after 06/04/2016 but before 05/04/2017 then it will be declared on the 2017 self assessment return with payment due no later than 31/01/2018
Do let me know if I can assist on this matter further
But it would be appreciated if you would rate for the level of service I have provided (or click accept)
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13715
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Sam and other Tax Specialists are ready to help you
Customer: replied 11 months ago.
Because the earning from the rental was below the taxable limit i.e. When we talked to tax office we didn't earn enough profit to have the need to declare it, at which point do we calculation start? From when we declare it or when we rented it out?
Expert:  Sam replied 11 months ago.
HI Thanks for your response Any rental income whether loss of small or large profit always has to be declared to HMRC - so you will ned to remedy this as the advise you have been given is inaccurate See link here https://www.gov.uk/renting-out-a-property/paying-taxIf the net rental income is less than £2500 then you do not need to complete self assessment but the income still has to be declared if more than self assessment.And in answer to your question the calculation would start from when you started to rent out the property Thanks Sam
Customer: replied 11 months ago.
It was confusing because we were under the impression when we talked to them they told us that we didnt have to do anything. What is the best way to declare this now?
Thank you for all your help. We will contact the tax office again.
Expert:  Sam replied 11 months ago.
Hi
I have sent an additional services request - so I can help you make the full disclose so that you minimise tax penalties (as this is over and above the original question listing)
Thanks
Sam

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