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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4207
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Me and my wife bought a house back in 2004 for £180k

Customer Question

Me and my wife bought a house back in 2004 for £180k - We both lived in the house between 2004-2013 - During that time we spent £50k on an extension. It has been on the rental market on and off ever since (2013-present)
We now live in another house we bought in 2013 - to present.
In the last year we spent an additional £150k on our rental/investment property building another extension to form an annex which could be rented if needed.
We are looking to sell our investment property now / or splitting the deeds to separate the annex if possible. The total sale would be for for £1000000 -
What is our capital gains situation please?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. The gain on your house is 1000K - 180K - 50K - 150K = 620K. Your total ownership period is say 144 months. Private Residence Relief (PRR) applies for the period 2004 - 2013, say 108 months [the calculation is based on months so a small adjustment may be needed]. Also for the last 18 months of ownership you are deemed to be in occupation even if this is not the case. This reduces the Letting period to say 18 months. Thus of the 620K gain only 18 / 144 [12.5%] is exposed to Capital Gains Tax (CGT), that is 77.5K. Divide by 2 leaves 38.75K each. Now from this deduct your Annual Exempt Amount (AEA) of 11.1K leaves 27.65K. You will be entitled to Lettings Relief (LR) up to 40K depending on the rentals received which might well eliminate the exposure altogether. A worst case scenario, assuming no LR would be a tax bill of a tad under 8K eachassuming GCT at 28%. CGT is actually levied at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. These percentages were not altered in the Budget yesterday whose changes excluded residential property. I do hope that you find myu reply of assistance.