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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have two properties which I need to estimate my CGT

Resolved Question:

I have two properties which I need to estimate my CGT liability for if they were to be sold.Property 1
Purchased in 2004 as main residence at £285,000
In 2012, I moved out and it has been rented out ever since
I would estimate having spent approx. £20,000 on home improvements
Current value is £420,000Property 2
Purchased in 2000 as a BTL investment at £60,000
I would estimate spending approx. £10,000 on improvements
Current value is £190,000Please can you give an indication of how much I would owe for each property?
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.

Before I can properly address your question there are a few points which require clarification. You tell me you moved out of Property 1 then let it. What about Property 2; did you ever live in it?

Customer: replied 1 year ago.
No did not ever live in property 2.
Expert:  bigduckontax replied 1 year ago.

For Property 1 you have Private Residence Relief (PRR) for the period of occupation plus the last 18 months of ownership when you are deemed to be in residence even if this is not the case. Your ownership period is 14 years and your let period 0.5 years. Thus 0.5 / 14 [say 4%] of any gain would be exposed to CGT. Your gain is 420K - 285K - 20K = 115K. Of this only 4% is subject to CGT, 4.6K.

Property 2 gain is 190K - 60K - 10K = 140K.

Now in the tax year of disposal you have a non cumulative Annual Exempt Amount (AEA) of 11.1K. It therefore behoves you to dispose of the properties in different tax years to take advantage of the AEA which I emphasise is non cumulative. For Property 1 you are also entitled to Lettings Relief (LR), but the gain is so small that your AEA will knock it out anyway.

CGT is levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. Your worst case scenario, assuming selling in two consecutive tax years, would be 28% on 140K - 11.1K = 128.9K, a tad over 36K.

I do hope that you have found my reply of assistance.

Customer: replied 1 year ago.
Hi Keith,
Thank you for this calculation. Property 1 sounds fine. As for property 2, I think the math is wrong. £190k - £60k - £10k = £120k not £140k.
So if my taxable pay is £15k pa. and I am selling property 2 only in this tax year, how much am I looking at?
Expert:  bigduckontax replied 1 year ago.

You are dead right, I am working in reduced light as my wife is still asleep. I am currently in a time zone 6 hours ahead of BST.

120K - 11.1K = 108.9K exposed to tax. 32K - 15K gives 17K @ 18% = 3.06K tax. The balance, 91.9K is @ 28% = 25.732K. Total tax due is some 28.792K.

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Customer: replied 1 year ago.
That's great! Thank you.
so, could moving back into property 2 for let's say 6 months before selling it give me any significant reduction in CGT liability as it would then be my main residence, could I then claim PRR and letting relief?
Expert:  bigduckontax replied 1 year ago.

Yes. LR up to 40K is available if you occupy before or after a letting period. You would get a little PRR, proportional to your occupation time.

bigduckontax and 2 other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Thank you so much for all your help:)
Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance.

Thank you for your support.