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Sam, Accountant
Category: Tax
Satisfied Customers: 14165
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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we bought a bungalow in 2002 for £150000 parents to live in

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we bought a bungalow in 2002 for £150000 parents to live in rent free and sold last week for £225000 after heir death we will have to pay capital gains tax
what is allowed apart from tax allowances ?
we paid £3000 for decoration to bring up to sales standard
and estate agents fees plus solicitors fees for buying and selling the biggest expense was the interest on the mortgage
my wives parents paid most pf the day to day running costs
How d we pay and do we need an accountant
regards Mike
Hi Mike

Thanks for your question - my Name is XXXXX XXXXX I am one of the UK tax experts here on Just Answer.

Yes you will have a capital gain position as you are selling a property that was not your main residence, and sadly dependents relief was abolished on any properties purchased after 1998.

So the initial gain will be the sale price, less the purchase price (so £225,000 less £150,000) so £75,000

From this £75,000 you can deduct the costs to buy and sell (so legal fees, and stamp duty, and estate agent fees) and any capital improvements such as new kitchen or new roof (I am afraid the redecoration costs are not a capital improvement and therefore are not an allowable deduction)

The interest on the mortgage is also not allowable against the capital gain. This can only be offset against rental income , of which there was none, as you allowed your parents to live there rent free.

But assuming this was in both you and your wifes' name, then each of you has the first £10,900 capital gain free (as this is your annual exemption allowance (this is due to rise to £11,100 after 06/04/2014)

Then any remaining gain is liable to capital gains tax, the rate of which this is charged is either 18%, 28% or a mix of the two, and this is determined your normal annual income and what unused basic rate band to have left.
So for example, an annual income of £32,475 - as the basic rate stops at £42,475, there would be £10,000 unused basic rate band - so the first £10,000 of the remaining gain would be liable to 18% and any gain over and above this would be liable to 28%

if you complete a self assessment tax return each year then you declare the capital gain on the relevant years tax return, If you do not already complete a self assessment return, then alert HMRC that you have a capital gain to declare - and the year in which the sale took place, so they can arrange to set you up within self assessment and issue the relevant self assessment tax return after the year end.

As tax returns are issued after the year end (so from 6th April) then you have to get this return back to HMRC by
31st Oct if you complete the paper return OR by
31st Jan the following year if filing online

Any tax due also has to be paid no later than that following 31st Jan. You do not need to use an accountant - as the self assessment return along with the capital gain section is quite straight forward, but this option is there is you wish it. Or you could come back to Just Answer, if you have any difficulties and we can help you complete the paper/online return - and if you would prefer to ask for me Sam Tax, just type my name in the new opening post, and the other experts will know to leave the question for me to answer.

Do feel free to ask any follow up questions



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