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bigduckontax
bigduckontax, Accountant
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I require some tax advice regarding Capital Gains Tax on my

Customer Question

Hi,
I require some tax advice regarding Capital Gains Tax on my flat.
I purchased the flat in September 2012. It took a couple of months to renovate and I moved in on December 2012. During that time I stayed in rental accommodation. From December 2012 until present I have been living in the flat. For approximately 2 years I rented out a bedroom to a single lodger.
I am planning on moving overseas for a period of time (could be 2 years) and plan to rent out my entire flat during that time. I note I will be required to pay income tax on any revenue during this time.
On return to the UK after 2 years I plan to move back in the flat and then sell the flat.
My questions are:
* For the period I rented out a room to a single lodger (and I also lived in the flat) I believe no capital gains tax will be payable (assuming I sell the flat for a profit);
* if I move overseas and rent out my entire flat for a period of 2 years, then will I be exempted from counting this period towards the capital gain under the 'period of absence less than 3 years' rule;
* from the facts presented would you agree if I sell the flat in 2 years time (and renting it out for the next 2 years), no CGT would be payable (assuming the flat is sold at a profit)
* If this last point is correct, can you advise any specific evidence I would need to provide HMRC.
Your assistance would be appreciated.
Thank you,
Daryl
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.

Correct, Rent a room Scheme does not affect the Capital Gains Tex (CGT) position.

No, the rules have changed; Experts for Expats advise:

'The UK tax loophole which allowed overseas investors and British Expats to avoid Capital Gains Tax (CGT) on the sale of residential property is now closed.

The new rule, which came into effect on April 6, 2015, will particularly affect British Expats and non-UK residents with UK property, especially those with buy-to-let agreements which generate an income. This new rule will mean that the sale of a UK property, which currently attracts no UK capital gains tax could incur a UK capital gains tax bill in the region of 28% on any gains made after April 6th 2015, depending on your personal circumstances.'

No, you would be liable to CGT on any gain made from a 6 April 2015 valuation. This would be 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. You have a non cumulative Annual Exempt Amount (AEA) of 11.1K to offset this and may be entitled to Lettings Relief (LR) up to 40K also.

You would only have to produce evidence in the event of a relatively rare HMRC inspection. One's normally kept records should suffice. However, you will need a 6 April 2015 valuation.

I am so sorry to have to rain on your parade.

Customer: replied 1 year ago.
Thanks for the note Keith, that's very useful.Can you also advise:
* how do I make the 6 April 2015 valuation? Is comparison to similar flats in the area sold at that time enough? Or would I need a professional (backdated!) valuation conducted?
* would I be eligible for 'private residence relief' in addition to 'letting relief'?
Expert:  bigduckontax replied 1 year ago.

Theoretically evidence of local trades is acceptable, but to get a proper professional valuation might be more prudent.

Private Residence Relief (PRR) is only available if you occupied the property as your sole or main domestic residence. PRR is, of course, a very valuable concession as it relieves CGT at 100%.

bigduckontax and 2 other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Thanks Keith, that helps.
Expert:  bigduckontax replied 1 year ago.

Thank you for your support.

Customer: replied 1 year ago.
Keith, that's all pretty clear in my head. I just have one more follow up question:If I move overseas (after living in my flat for 4 years), rent out my flat, then after 2 years move back to the UK, live in my flat for 1 year and then sell the flat for a capital gain of £200k (capital base is my initial cost on purchase on September 2012 plus renovation costs plus stamp duty), how will my CGT be worked out?Option A: private residence relief of 5 years plus 6 months (I will get relief for the last 18 months living in the flat) out of the 7 years. Therefore, CGT on the £43k would be payable. In addition, I would get letting relief of £40k (lowest of private residence relief, £40k and the chargeable gain from letting the flat, assume £40k is the lowest). Therefore, CGT would be payable on the £3k.Option B: Same as above, except my capital base would be reset to the valuation on April 2015 because I moved overseas for 2 years. I would still qualify for private residence relief on the final 18 months as well as letting relief.
Expert:  bigduckontax replied 1 year ago.

Your capital gain of 200K will be adjusted as follows. Take your total ownership period in months [A]. Take your letting time less 18 (for the last 18 months of ownership you are deemed to have been in residence even if this is not the case). Then 6 / A will be the ratio of the gain exposed to the tax. Now deduct your AEA and LR and I suspect that you will find that you have no tax to pay, or if you do it will be minimal.

Customer: replied 1 year ago.
Thanks Keith, you've been very helpful.
Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance.

Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 1 year ago.
Hi Keith, I've left a review and have already provided a 5 star rating...thanks for your help!
Expert:  bigduckontax replied 1 year ago.

Thank you for your support.