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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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I need some help on capital gains tax please, I bought my

Resolved Question:

Hello, I need some help on capital gains tax please,
I bought my flat in Feb 1998 for £40,000 and I lived there until March 2011, I then moved in with my partner and rented the flat out. I sold the flat in March 2014 for £144,000, I made £104,000. (This was my only property at the time).
I rented for a total 24 months. I received £600 per month, had a mortgage of £360 and service maintenance of £100 per month, so only made £140.00 per month.
I was on maternity leave from August 2010 and did not return back to work until November 2015, I was a stay at home mum, no benefits (apart from child benefit) and no employable income.
I have now been informed by the tax office that I need to speak to a tax advisor about capital gains tax. I am so worried about this but cannot work out what I will owe...
Please HELP!
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.

AS you sold a property that for a time had not been your main residence, there is a capital gain consideration.

I am assuming you declared all the rental income to HMRC (and not all the mortgage would be allowable - just the interest element) so you probably made a bigger profit each month from HMRCs perspective

If you have yet to declare the rental income then make sure you rectify this

As you made an initial profit of £104,000 from this you can deduct the costs to buy and sell - so legal and estate agent fees, also you can deduct the costs of any capital improvements such as a new kitchen or bathroom, so I shall estimate £4000 and move forward with £1000,000 (do adjust this as needed)

So next the tax reliefs are looked at

First private residence relief (PPR)

You owned this flat for 193 months and lived there for 157 months

So the 157 months PLUS the last 18 months of ownership (a total of 175 months) form the private residence relief exemption

Applied this is the gain (estimated) £100,000 x 175/193 = £90673 exempt

Deducted from the £100,000 leaves a gain of £9327

Now next is private lettings relief, as you let out a property that was once your home

This is the lesser of

1) the amount of gain on which private residence relief is due - so £90673

2) The amount of gain left over after private residence relief has been applied - so £9327 OR

3) £40,000

As the lesser amount is 2) The amount of gain left over after private residence relief has been applied - so £9327

This leaves you a NIL gain

(But for information purposes - you also had your annual exemption allowance for 2013/2014 which would have allowed the final gain to have £10,900 exempt - but as you already are NIL chargeable, this will not need to be utilised)

So to recap

You must declare (if you have not already done so) the rental income - but note only the interest element of the mortgage repayment is allowable to deduct from rental income (not the whole payment) but as you had no income (or maybe just maternity pay) then there may not be a tax position arising - but all needs declaring anyway

And there will be NIL capital gains to pay based on the figures above 0 but note I estimated £4000 for the costs to buy and sell - which may be more or less, and I have not considered the costs for any capital improvements

Let me know if I can assist further. However if you have all that you need, it would be appreciated if you could rate me for the level of service I have provided (or click accept)

Thanks

Sam

Then you have private lettings relief to consider

Customer: replied 1 year ago.
Hi Sam
Thank you so much.
Yes I did declare the the rental on this flat, I was chased for a self assessment and so asked the tax office to close this for me, and this is where all all this came from.
I spent probably more than £4000 on solicitors, estate agents, new bathroom, painter and decorator etc.
So please forgive my ignorance but have I understood from your reply that I will probably not have to pay any capital gains tax?
Thank you
Lisa
Expert:  Sam replied 1 year ago.

Hi Lisa

Yes that's right if your costs were £4000 to buy and sell and the new bathroom (and as long as the painting an decorating was just on the bathroom) then you will have NIL capital gains tax to pay

But you still need to provide HMRC with the capital gain position on the 2014 self assessment tax return so they can see its NIL to pay

Let me know if I can assist further

Thanks

Sam

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