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Sam
Sam, Accountant
Category: Tax
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I bought a flat for £160,000 and will sell at £300,000 6 years

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I bought a flat for £160,000 and will sell at £300,000 6 years later. I will have capital gains allowance available to minimise tax. My son lived there for three years from 2010 until 2013 then there was a tenant there. I will move in for six months from this month until September. I paid £25,000 in windows, kitchen, bathroom floor refurbishment also includes solicitors fees etc.
I would like to know if my six month's stay there currently will minimise CGT also how do I set lettings relief off against CGT, I do not understand this relief. I could stay there longer than 6 month, say a year, how would that benefit me. Any other advice to reduce CGT appreciated.
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi Thanks for your question - I am Sam and I am one of the Uk tax experts here on Just Answer. The 6 months stay will minimise the capital gain position as it will allow the consideration of private lettings relief (which can be up to a further £40,0000 tax relief) and also the 6 months themselves will attract private residence relief. Let me show you how private lettings relief works. The gain is the sale price less the purcahse price - so this for you meas £300,000 less £160,000 = £140,000From this £140,000 you can deduct the costs to buy and sell (so stamp duty, legal and estate agent fees etc) and the costs of any capital improvements - so all but the bathroom floor (which is not a capital improvement as it would have needed to be the whole bathroom refurbished) But we will call this the full £25,000 for the sake of keeping this simpleSo £25,000 deducted from £140,000 = £115,000Then we have the private residence relief which allows the 6 months (will need adjusting if you decide to live here for 12 months) of the total ownership of 72 months (again this will need to be made accurate) so 6/72 x £115,000 = £9583 tax free for Private residence relief This leaves £105,417The private lettings relief - which is the lesser of 1) the amount of private residence relief due - which is £95832) The amount of gain left over after private residence relief has been applied - which is £105,417 OR3) £40,000 So as the lesser is 1) £9583 this is then the private lettings relief allowed So deducted from the remaining gain of £105,417 this leaves £95,831 Then the first £11,100 for the annual exemption allowance (for 2016/2017) leaves a final chargeable gain of £84,731 This gain is then charged at 18% or 28% or a mix of both, dependinh how much unusedbasic rate band you have. Let me know if you wish me to clarify any element of my response Thanks Sam
Customer: replied 1 year ago.
Hi Sam, I thought that as I will be living there for six months as principle residence the 18 month rule applies which I thought would be added to the 6 months, so lettings relief would be for two years so less than you have quoted. Please advise. Gill
Expert:  Sam replied 1 year ago.
Hi Gill Thanks for your further question Not in this case, as the 6 months you live there supercedes the last 18 month rule. So had you lived in this property for the first 6 months then you would have been due the last 19 months too, but as it being your main residence is the end part of ownership its this time that actually qualifies for private residence relief, so there is NO last 18 months to consider) Let me know if I can assist further,Thanks Sam
Customer: replied 1 year ago.
Thanks Sam, just one further question, I bought the flat originally for my son who lived there for three years, is there any relief for that? Also I realise now I will probably stay for 10 months so that is 10x72 x 115,000 I make that relief at £16,700 (ish) is that correct, it seems quite an increase for another 4 months, but I divided 72 by 10 to get 7 then divided 115 by 7, which I think is what you did but with a lower number (6x72) = 12, but if I have got that wrong please advise. Many thanks. Gill
Expert:  Sam replied 1 year ago.
Hi Gill Usually furtehr questions asking for additional work should be listed as such with a new amount offered - or a furtehr payment for additional Q & A time, but as this is your first time on Just Answer, I will do this additional work under the amount offered initially (but please do rate the level of service I have provided, or click accept - and a bonus is always welcomed - thank you) No there is no relief for your son living at the property as whilst it was his main residence he was not on the deeds of the property that is why I have not given you relief for this time.If you stayed 10 months then the reworked position would be 10/76 (as if the time living there increases so does the time of ownership) So so 10/76 x £115,000 = £15131 tax free for Private residence relief This leaves £99,869The private lettings relief - which is the lesser of1) the amount of private residence relief due - which is £151312) The amount of gain left over after private residence relief has been applied - which is £99,869 OR3) £40,000 So as the lesser is 1) £15131 this is then the private lettings relief allowedSo deducted from the remaining gain of £99,869 this leaves £84,738Then the first £11,100 for the annual exemption allowance (for 2016/2017) leaves a final chargeable gain of £73,638Thanks Sam
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Customer: replied 1 year ago.
THANKS.

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