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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4198
Experience:  FCCA FCMA CGMA ACIS
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CGT query. We are UK residents and selling a second home.

Customer Question

CGT query. We are UK residents and selling a second home. Bought July 2012 intending to live in it then moved to singapore. Rented out on short lets with us living in it for odd weeks for next two years. Moved back to UK August 2014 and lived in it until end January 2015. Then let out again. Until June 2016. Since then Short lets and son (18) stay in there occasionally. Bought £450k, selling £610 less agency fees etc £20,000 and new windows £10k. Purchase fees £2k and stamp duty. I am higher rate tax payer. Husband not working but has approx £6k rental income from other properties and some rental income from flat. What would our cgt allowances and tax be and should we put the council tax in our sons name (it is currently back in our names) The flat is jointly owned. Thank you for the advice !
Submitted: 12 months ago.
Category: Tax
Expert:  bigduckontax replied 12 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Firstly, let us calculate the gain. This is 610K - 20K - 10K - 450K - 2K = 128K. However, you have not quantified the stamp duty paid in 2012 which can be deducted also so I need to know that. Private Residence Relief (PRR), which relieves CGT at 100%, is extended up to three years assuming that all the duties of your overseas employment were carried out in Singapore and the last 18 months of ownership have PRR extended anyway.

There is a further complication, you say it is a second home. Where is the first and when did you acquire that?

Lots more data I need to know before I can even begin to compute a CGT liability, sorry. Very worst case scenario at this stage is 128K / 2 = 64K - 11.1K (Annual Exempt Amount) = 52.9K which at 28% would be 14.81K each CGT to pay. However, that is a worst case, with more data to go on it could be less.

I await your instructions.

Customer: replied 12 months ago.
Stamp duty was 3% so £13,500 I think. My husband must be lower rate of 18%? Our main home is in london, bought late 2003. We were overseas and moved in summer 2004. This was lived in until August 2009 when we moved to singapore and then rented out in September of that year. We bought the flat to live in when I returned to the UK and intended to keep renting the house. We then chose to move back to into the house in January 2015 ready for when my husband returned from singapore later that year. I can't recall the date we agreed he was resident in the UK again. Around April I think. I can check if it matters. Does this help ? Thanks. Margrit
Expert:  bigduckontax replied 12 months ago.

A little Margrit, but the situation is still far from simple. When you bought your second home did you elect to which you would like your PRR applied?

Yes, I accept what you say about your husband's income, but I did say it was a worst case scenario. Of course in his case there would probably be the lower rate of 18% applied.

Customer: replied 12 months ago.
No we didn't make an election but our main home has about £1m potential capital appreciation so we don't want to add uneccessary potential cgt to that. I think we may be due some as we rented it out for 4 of the 5 years we were away. One year empty/ me staying there to oversee renovations. But really need the max money right now from the sale of the flat as we are struggling on one income. Capital in home, but not enough income....school fees to pay. Thanks. Sorry if this is more complicated ! Margrit
Expert:  bigduckontax replied 12 months ago.

No, it is the real world! I remember school fees for my daughter in the 80s, now a Doctor of Engineering, living and working for the government in New Zealand.

I can see why you did not elect, but as you did not HMRC may well base their decision on the facts and as you lived on an off in this second home then they may insist on PRR being applied thereto. In the long term that could leave you with a huge CGT bill when you sell out in London.

The Stamp Duty reduces your gain to 114.5K, 57.25K each less the AEA = 46.15K.

For your husband add 6K to 46.15 = 42.15K. 31865 - 6K = 25865 so that would be taxed at 18% = say 4656 plus 10285 @ 28% = say 2880 so total CGT for him would be of the order of say 7536. Better than the proverbial poke in the eye with a sharp stick.

For you the whole gain will be taxed at 28%, 14.81K.

So between you the total bill aggregates to say 22.4K. However, as you occupied after your return you can claim Lettings Relief (LR) up to 40K so you may find the whole bill extinguished all together.

In any event, if HMRC decide that it is the residence to which PRR applies, it seems to me that with the time in Singapore, the last 18 months or ownership and your occupation time that PRR will apply throughout and CGT knocked out altogether. It all depends upon which way the HMRC cat jumps.

I fear that you may need a local, trusted professional to guide you through the negotiations with HMRC. This is an extremely complex situation.