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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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Correction of CGT computation and CGT return. In 2012 I have

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Correction of CGT computation and CGT return. In 2012 I have sold my house no.2. In computation I have stated that between purchasing date 20.01.2007 untill August 2009 it was my sole residency. On 17.09.2007 I have written to HMRC to say that I nominate this house no.2 as my main residency with effect from 17.09.2007. The facts were that I also purchased on 27January 2007 another house no1. where I lived with familly between Januarry 2007 and September 2007, however becouse I was refurbishing house no1. purchased on 27January I was moving from time to time to house no2. purchased on 20 January 2007. I do not remember how often, nevertheless I had life properly established in house no1. purchased on 21.01.2007.I belive changing date on computation for house no.2 would not have any impact on CGT, however It would be beneficial to correct this In order to preapare computation for sale of house no1.Can you please advise what I need to do in order to clarify this matter and help me with correcting computation if possible?RegardsThe capital gain calculation:
Sale Price £815,000
Less Purchase price £550,000
Less costs to buy and sell £41521 (Stamp duty, Legal fees to buy and sell, Estate agents and HIP)
Less Capital Improvements £110,000
Gain £113,479
The property was purchased 20/01/2007 and sold 30/07/2012 so owned for 66 months – no. of bedrooms 7
It was my sole residence with no paying tenants (so 100% private residence relief is due) for the period 20/01/2007 to August 2009 - which totals 31 months so 31/66 x £113,479 - £53,301 Private Residential Relief
Then due 85% private residence relief for the period September 2009 to September 2010 - so 13 months/66 x £113,479 x 85% = £18,999 Private Residential Relief
Then you were due 28% private residence relief for the period October 2010 to September 2011 - so for 12 months so 12/66 x £113,479 x 28% = £5777 Private Residential Relief
Then due 14% private residence relief for the period Oct 2011 to July 2012 - so for 10 months - so 10/66 x £113,479 x 14% = £2407 Private Residential Relief
Total relief due £80,484 which is deducted from the gain of £113,479 = £32,995
Then private lettings relief is due - this is the lesser of
1) the amount of gain on which private residence relief is due - so £80,484
2) The amount of gain left over after private residence relief has been applied - so £32,995 OR
3) £40,000
As the lesser amount if 2) £32,995 The amount of gain left over after private residence relief has been applied - so , this when deducted from the remaining gain of £32,995 - leaves a NIL capital gain tax bill.
This is without using your annual exemption allowance of £10,600 !
Submitted: 10 months ago.
Category: Tax
Expert:  Sam replied 10 months ago.
Hi
So we now have this one thread that we will take matters forward fopr you
I have a couple of questions regarding the house sold in 2012 then a couple of questions regarding your residency position so we can then fully deal with the capital gain position on this house you wish to sell, looking at whether you return to the UK before 05/04/2017 or after
First then
1) The house sold in 2012 I can see that you nominated it as your main residence effective from 17/09/2007 - but when did you buy this property and when had it ceased to be your main residence - but you bought this on 20/01/2007 - so what was it used for between 20/01/2007 and 17/09/2007
2) You then state that house that you now plan to sell was bought 27/01/2007 (so a week later???) is that correct - and this - you now advise was your main home from 27/01/2007 to Sept 2007 - is that right? As you then advsie me that this was your sole residence from 20/01/2007 to Aug 2009 - but then this contradicts the fact you state that the property you still own was your main residence from 27/01/2007 to Sept 2007
Then regarding your residency
1) Can you advise when you left the UK (I think you may already have provided this but it would be easier to keep this all together) and was this a contract for your own self employment OR were you employed or providing subcontracting work to another business. Wee you paid from the UK for this work and how long did the initial contract last. Did you have several contracts between now and then - or has it been one continuous contract.
Did you family come with you and did you rent both houses out (or did the property sold in 2012 get sold before you left the UK?)
2) Did you declare all rental income to HMRC and operate the non residency scheme (where you could have your rents gross without any deduction of tax)
3) You advised that your self employment in the UK did not cease until sometime in 2013 - which suggests you were still trading after you left the UK - please advise
Ok that will get me able to bring a picture and timeline together
Thanks
Sam
Customer: replied 10 months ago.
SamFirst then
1) The house sold in 2012 I can see that you nominated it as your main residence effective from 17/09/2007 - but when did you buy this property and when had it ceased to be your main residence - but you bought this on 20/01/2007 - so what was it used for between 20/01/2007 and 17/09/2007house no.1 currently let out was bought on 27.01.2007 (week later)house no.2 sold in 2012. It was bought on 20.01.2007 and sold on 30.07.2012 this is when it ceased to be my main residence. In terms when it started to be my main residence - this should be explained by answer to query number 2.
In the period when I was living in house no.1 the house no.2 was empty.2) You then state that house that you now plan to sell was bought 27/01/2007 (so a week later???) is that correct - and this - you now advise was your main home from 27/01/2007 to Sept 2007 - is that right? As you then advsie me that this was your sole residence from 20/01/2007 to Aug 2009 - but then this contradicts the fact you state that the property you still own was your main residence from 27/01/2007 to Sept 2007I have discussed timings with my wife and I think that this is best reflected by the following:
After I have purchased house no.1 I have carried some work to it. Firstly it was heavy demolition and structural work, so initially we stayed in house no.2. After lets say 4 months (?not sure exactly what date was it) we have moved into house no.1 and established life there: nursery, doctor etc. Than due to change in work load and credit crunch we decided that we need extra income and would be good to rent one of the houses. We recognised that it would be much easier to rent out house which we have already refurbished because of its standard and location. Then we decided to move to house no.2 but I do not remember exactly whether it was end of August or beginning of September, nevertheless we could assume that it was on or about 17.09.2007 as stated in letter to HMRC.Then regarding your residency1) Can you advise when you left the UK
After house no.2 was sold on 30.07.2012 I have left UK on 30.07.2007, but I have come back in September and so on keep coming back. I guess at that stage I was one foot still in UK.(I think you may already have provided this but it would be easier to keep this all together) and was this a contract for your own self employment OR were you employed or providing subcontracting work to another business.I have registered as self employed on 11.12.2011 (but first transaction had after end of April 2012) and stop trading on 31.03.2013. I had only one private client and received money from him. (small amount declared in tax return for 2013.)
This was business advise service type of business. Unfortunately I have not done well on this occasion.Did you family come with you and did you rent both houses out (or did the property sold in 2012 get sold before you left the UK?)
My family went abroad around September 2011. They never returned to UK to live here, only for short holidays and while in transit.
Property no.2 sold in 2012 was sold on the day I left UK.
Property no.2 bought on 20.01.2007 was rented out partially from September 2009 until July 2012.( I was also living in this property together with the family)
Property no.1 bought on 27.01.2007 was rented out from (I think )19.08.2008 between 17.09.2007 and 19.08.2008 was empty - I was looking for the tenants. At that stage due to credit crunch there was a great supply of offered rented accommodation.
2) Did you declare all rental income to HMRC and operate the non residency scheme (where you could have your rents gross without any deduction of tax)
Yes, all rental income was declared to HMRC, however I never operate the non residency scheme.3) You advised that your self employment in the UK did not cease until sometime in 2013 - which suggests you were still trading after you left the UK - please advise, Yes I have done very little work in mid 2012 but nothing major. Apart of that I did not do any other work. I had a plans to use opportunity of travelling in and out of UK for business assisting other businesses wanting to establish their business in UK but I was not very successfully. I have stooped trading around 31.03.2013 but I think in self return I have written that I stop trading on 05.04.2013.
Than I have established another business - self employment abroad on 05.03.2014.I hope I was clear enough??
Kind Regards
Expert:  Sam replied 10 months ago.
Hi
Thanks for your response
You cannot swap and change which house was the main residence after house number 2 has been sold back in 2012 and clearly was your main residence throughout - so what you refer to as house number 1 cannot also be your main residence - so the period 27/01/2007 to 30/07/2007 cannot be treated as your main residence towards this sale to take place as you cannot have two residences as your main residences under the circumstances you describe. So that clears that up I hope, but you do need to change the dates you advised HMRC re property 2 as you seem to have then advised HMRC that it did not become your main residence until 17/09/2007 - so why did you do that when clearly it was not the case ??
Then you advise you family did not join you abroad until Sept 2011 so where did they live House 2 or 1?
Then you seem not to have actually move out of the Uk during the years 2007 to 2011 as your family were still in the UK and you were till trading as self employment until 2012/2013
I am afraid this is becoming too big a situation to unravel and establish fully - and may I add you have made this into a more complex situation by having one sent of facts and then changing them and having HMRC implement these incorrect facts to the sale in 2012 which is making it impossible to see you charged fully on capital gains on this sale to come.
Then your residency status for 2007 to 2011 (Sept) is now not as solid as it first appeared - HMRC do not seem to be aware you are even out of the country as you failed to tell them - and did not operate tax deductions from the rents which you were legally obliged to do as you had not registered for the non residency landlord scheme - so this is another complication that needs unpicking.
Then we have the fact that the capital gain laws changed with effect from 05/04/2015 - so whether we can argue you remin not resident for at least 5 tax years, during which this new sale takes place - you will still have a capital gain position due to those changes in the law (be it though a lesser one as its just any gain made from 05/04/2015 to the date of sale)
I really do think you need to engage an accountant as this is too complex to keep going back and forth as it gets more complex each time I ask a new set of questions, so
1) We either have this telephone conversation so I can actually get all the facts in one go - so I can then also advsie you over the telephone but will be happy to also write this up for you by way of a resposne OR
2) You need to find an accountant that you can sit in front off s a natural flowing conversation can take place (which would be far superior to a telephone call and backed up by all your receipts and documents and flight evidence of in and out of the country, plus look at your self employment and the rental position to rectify this - so each element can be time lined and papertrailed accordingly.
Thanks
Sam

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