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Sam
Sam, Accountant
Category: Tax
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Please advise me the tax liability and when it is due to be

Resolved Question:

Please advise me the tax liability and when it is due to be paid for the following:
From 2002 to 2010 my husband and I lived in our only house in Manchester. My husband died in August 2010 and I lived there alone until September 2013.
In September 2013, I moved out and sold the house on a 25 year instalment contract. On exchange of contracts I received a deposit. The contract involves my giving the purchaser a private repayment mortgage for the remainder of the purchase price. He pays me monthly capital and interest, as he would to a bank, such that the amount still owing is reducing on a monthly basis. He has the option to redeem the mortgage whenever he wishes during the 25 year term, but has not done so yet.
From September 2013 to September 2014 I rented a house for my own use. I purchased the same house outright out of my savings in September 2014. I improved it and sold it at a profit in April 2016 on a 10 year instalment contract. On exchange of contracts I received a deposit. The contract involves my giving the purchaser a private repayment mortgage for the remainder of the purchase price. She pays me monthly capital and interest, as she would to a bank, such that the amount still owing is reducing on a monthly basis. She has the option to redeem the mortgage whenever she wishes during the 10 year term, but has not done so yet.
I do not currently do not live in my own house.
Both of the houses I have sold on an instalment contract have been at different times my only home. Am I right to assume that no capital gains tax is or will be payable?
Am I right to assume no tax is payable on the deposits and capital elements of the money I have received? The deposits were around 5% of the house value.
Is tax due on the interest component of the monthly instalments I receive and if so when is it payable and at what rate?
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.

Hi

As you lived in the initial property until sale, and the sale date is treated as the tax timeline for capital gains, as it had been your main residence throughout the term contract is not subject to capital gains BUT did the purchaser pay you interest of the loan repayments and have you declared these to HMRC?

Property 2 again as this was your main home from Sept 2014 to sale in April 2016 there is no capital gains as any profit is covered again under the private residence relief rules BUT any interest paid is income that should be declared to HMRC.

Ths interest should be declared at each tax year end (so after 5th April each year (as tax year runs from 6th April to following 5th April) and the rate is dependent on what your other annual income is. So could you advise

1) The interest received for each tax year (2013/2014 2014/2015 2015/2016) and

2) Your annual income for those years

I can then advsie the tax due and at what rate

Thanks

Sam

Customer: replied 1 year ago.
I am gathering the info.
Expert:  Sam replied 1 year ago.

Hi

Lovely - I shall await the information in due course

Thanks

Sam

Customer: replied 1 year ago.
For 2013/14 the interest received was 4735.51. Legal and advertising costs were £771.74. I paid £51.90 for house insurance on the Manchester house. My total gross income was £20,517, not including payments re the Manchester house..For 2014/15 the interest received was 6,464.31. Insurance costs for the Manchester house were £103.80. My total gross income was £23,815, not including payments re the Manchester house..For 2015/16, interest received for the Manchester house was £6,361.47. Insurance costs were £103,80.
For the other house, I made a loss since I am chasing a debt and there was significant damage and clearance and cleaning costs which exceeded the amount paid. My gross income for that year, not including payments re the Manchester house or the other house, was £30,157.00 (two figures making this up are estimated).The gross income figures above include payments made to me by 2 separate agencies with whom I work from home and travel to various locations up to 30 miles away from home. They deduct tax from my earnings but do not pay my expenses. Am I entitled to reduce my tax liability by claiming these very considerable expenses and if so, in what section of my tax return do I enter these details? What is the rate per mile for 2014/5 and 2015/16 acceptable to the IR?I WILL rate your service in due course.Thank you in anticipationi
Expert:  Sam replied 1 year ago.

Hi

Thanks for your response

The legal and advertising costs would be set off against the capital gain for 2013/2014 House Insurance not allowable as no rental income - so your total income fir 2013/2014 was 25252 less personal allowances of £9440 = so £15812 liable to tax at 20% = £3162.40 less paid against the other gross income

For 2014/2015 , total income £30379 less personal allowances £10.000 leaves £20379 liable to tax at 20% = £4075.80 less paid against gross income

Insurance costs not allowable

For 2015/2016 total income £36818 less personal allowances £10,600 leaves £25918 liable to tax at 20% = £51836.94 less tax paid on the gross income

But you cannot claim clearance and clearance costs against any interest you may have received - as these can only be offset against any rental income which you do not have - sow e may need to revisit this liability.

Travel to and from work is not an allowable expense so there is not a claim here to offset against your income

Thanks

Sam

Customer: replied 1 year ago.
HelloYou write: "The legal and advertising costs would be set off against the capital gain for 2013/2014"
You previously said there would be no capital gains tax to pay. Can you clarify, please?
Also, I ought to have added that I hold the deeds and the sale is not yet registered with the Land Registry as it is a delayed completion.Re 2015-16, the agreement was rent to buy with the option to buy not taken up. So I did receive some rent, but not all and the option fee is still owed.
Customer: replied 1 year ago.
Re travel expenses for agency work:I do not travel to a FIXED place of work but to people's homes or libraries. Does this make any difference?
Expert:  Sam replied 1 year ago.

Hi

Thanks for your further questions

My apologies for consufing you re the legal and advertising costs< These can only EVER be offset against a capital gain, and as you do not have one, there is nothing to offset these costs against.

You advsie that the option to buy has not been take up on property 2 but you state "From September 2013 to September 2014 I rented a house for my own use. I purchased the same house outright out of my savings in September 2014. I improved it and sold it at a profit in April 2016 on a 10 year installment contract. On exchange of contracts I received a deposit." - so a contract to sell has taken place - has it not - please clarify as this seems conclusion from HMRCs point of view

The travel expenses are not allowable - as you state you work from home - so if this is the cae how can you then have travel expenses - what locations and why the travel - please expand further

Thanks

Sam

Customer: replied 1 year ago.
Re property 2. I apologise for the confusion. I wrote correctly about the April 2016 deal, which you quote. Yes, a contract to sell has taken place. Are you sure that the sale date (contract date) is treated as the tax timeline by HMRC? There will be delayed completion.However, I omitted to say that from October 2015 to February 2016 I had a rent to buy agreement and AST with a tenant buyer. She paid some of the rent but failed to pay the option fee which I had agreed to accept in instalments. My costs for repairs and clearance after she left exceeded the amount of rent received. I have tried to recover the debt but she now tells me she is going for an IVA and that the funds she was expecting to receive from her step father's estate will not now be coming to her.
Expert:  Sam replied 1 year ago.

Hi

Thanks for your response

Yes the capital gain is treated as having arisen at the time the contract is signed - regardless over what period of time payments may be made. As soon as you accept the deposit under these conditions the scene has been set and the time line created. The completion isnt just delayed under the normal rules, its part of the agreement you have drawn up to allow the purchaser to pay over a long period of time. There may be scope to ask HMRC to consider this under delayed completion rules, but its a long shot.

The repairs are it allowable under property 2 as these were made after the tenant vacated the propriety so were to get the property back into a rentable/sell able state. These are therefore not allowable against rents received, which should also have been declared to HMRC

Thanks

Sam

Customer: replied 1 year ago.
Thank you for your reply.One last thing: Can my work for the agencies be classified on a self employed basis? I have zero hours contracts with them both. If so the travel expenses would be deductible? .
Expert:  Sam replied 1 year ago.

Hi

Really this should now be listed as anew question with a new amount offered as going right off the original topic, but as this is your first time on Just Answer, I will reply within the price offered for this post, on this occasion.

No agency work is never self employment as the agency provides the client end user for you - so its not a direct contract with the client, so always employment

And still the travel would not be due as this then becomes your normal place of work (which applies both for employment and self employment)

Thanks

Sam

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Customer: replied 1 year ago.
Thank you.