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Sam, Accountant
Category: Tax
Satisfied Customers: 14195
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Hi, I seem to be able to ask my question now :-) We bought

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Hi, I seem to be able to ask my question now :-)

We bought a property in 1998 for 125,000 and lived in it until 2004.
We have rented it from 2004 until 2014 and now are looking to sell it for £375,000 - a profit of 250,000.
The property was bought before we married and is in my wifes maiden name. My wife has not worked for 7 years and has not claimed any benefits of any kind.
My question is : what can we offset against the capital gains on the property? Can we claim my wifes allowance for the previous 7 years etc.

Thanks for your question and asking for me.

From the gain of £250,000 you can claim the costs to buy and sell (so legal fees, stamp duty, estate agent fees etc) and also the costs of any major improvements, such as a new kitchen, new bathroom, new roof etc

Then when these deductions have been made, then tax reliefs are considered.

AS it is in your wife's name only, then only one set of tax reliefs will be due, but she will form an exemption for the time she lived there plus the last 36 months of ownership (its 36 months if the property is sold before 05/04/2014, but this reduces to 18 months if the property is sold after 06/04/2014) so she will have either 9 years (if sold before 06/04/2014) or 7.5 years (if sold after 06/04/2014) of the 16 years of ownership exempt.

And there is private lettings relief, which allows up to a reduction in the gain of up to a maximum of £40,000 (assuming rental income has been declared to HMRC)

Then finally the first £10,900 is exempt (this increases to £11,100 after 06/04/2014) but is only awarded for the year of sale and I am afraid personal allowances cannot be utilised against the capital gains,but I assume she has been using this to cover the rental income anyway so has had use of it, but any unused excess I am afraid is lost.

Then anything left over is charged at 18% or 28% or a mix of both.

If there is unused basic rate band - which in your wifes case, I assume there will be - then the eqivilent of this unused band allow 18% charge on the capital gain.
For example, annual income of £9440 - this means there is £33,035 unused basic rate band, so the first £33,035 of the gain is charged just at 18% and any remaining gain at 28%.



Customer: replied 4 years ago.

Thank you Sam. We purchased the property in 1998 off plan. We then spent about 10,000 getting the garden turfed and planted and a large decking added. We also spent a further £40,000 having the loft converted to another bedroom and bathroom. We also built a 4 bay car port for £10,000 and also converted the garage to an office for £5,000 Therefore our total spend has been £125,000 + £10,000 + £40,000 + £10,000 + £5,000 = £190,000 + our initial fees (where would I find out how much we paid to estate agents, stamp duty in 1998 etc). If I assume another £10,000 in fees this brings the total up to £200,000.

If we sell for £375,000 this means there is £175,000 potential capital gains. We did not declare the rental income to HMRC as after paying the mortgage on the property it cleared £300 a month which was clares only income therefore below the tax threshold. Can we contact HMRC and tell them about the last 7 years income of £3,600 per year and then claim the private letting relief of £40,000? As my wifes income was only the £3,600 how much would we actually pay in Capital Gains Tax and are there any other ways to offset anything else before paying the tax? Thanks again!


Thanks for your response

If you do not hold the sales paperwork, then the conveyance/solicitor you used will have this information, and stamp duty, also the conveyance, and also the mortgage company.

Decking and the garden being turfed would not be permitted - as this just made the area aesthetically pleasing, rather than add value to the property itself.
But the loft conversion and the 4 bay car port, will certainly be permitted as will converting the garage to an office (as long as this would not used for business purposes then no further adjustment would be needed on the garage conversion)

So you can claim £55,000 - leaving 195,000 (less costs to buy and sell)

I am afraid you should have declared the rental income to HMRC even if there was no profits - as they will no know this fact, unless you tell them (and not only the interest element of a mortgage is an allowable expense not the whole mortgage payment)

And yes, by rectifying the rental income position then you will be due the private lettings relief, but be aware that this is calculated as the lesser of
1) The amount of gain on which private residence relief is due
2) The amount of gain left over after private residence relief has been applied OR
3) £40,000
(just so you have the correct procedure for considering this allowance as its UP to a maximum of £40,000)

If you wish me to make a approx calculation for you, then I am afraid this will need to be listed as a new question as per Just Answer policy - as this was not asked for with your original post, and we answer for the fee offered based on the original question.

Or you can always add a bonus after accepting/rating - let me know which you would prefer


Customer: replied 4 years ago.

Thanks Sam, of the 195,000 Im guessing we can claim 7.5 or residency of the total of 16 years we owned the property so that equates to 195000/16*7.5 correct?

Hi Steve


Yes that's right - (as its very likely the sale will take place after 05/04/2014) although when you make the calculation fine tune this down to months of ownership/exemption, rather than years.


I am about to meet with clients, but I shall be back within the hour - if you have any more follow up questions, but it would be appreciated if you could rate the level of service received.




Thanks Sam

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