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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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Would my wife and myself be liable for any capital gains from

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Would my wife and myself be liable for any capital gains from a house we sold in june 2013.The house was purchased in may 2000 as our main residence for £80k and we lived there for seven years.In December 2007 We then moved to another property which we took out a second mortgage to buy.Because of market conditions we could not sell the first property at this time(value 160k) so this was rented out to cover the mortgage payments until we finally sold in 2013 for 140k.We are both 40% tax payers.

Thanks for your question

I am Sam and I am one of the UK tax experts here on Just Answer.

Yes there will be a capital gain, as its been more than 18 months form this first property, ceasing to be your main residence.

But the time that you lived there, plus the last 18 months of ownership will form a period of exemption on the gain made.

Then as you have let this property out (and I assume declared the rental income position to HMRC) you will also be due private lettings relief, which can allow up to a further £40,000 relief.
Plus each of you also have your annual exemption allowance, which allows the first £11,000 of the gain to be exempt (after the reliefs and other deductions have been applied) so a further £22,000 exemption.

The gain is £140K less £85K = £55K
From this £55K you can deduct the costs to buy and sell (such as legal fees, estate agent fees etc)
Then apply the private residence relief
Then the private lettings relief.
Then with the amount left over - and each of your shares are allocated - then the first £11,000 each will be exempt and any reminaing gain liable to capital gains tax.

There are two rates of capital gains 18% and 28%
If your normal annual income is in excess of £42,475 - then the gain will be liable to 28% tax,
If your normal annual income is less than £42,475 - then any unused basic rate band will allow the equivalent amount of the gain, to be charged at 18%.
For example, annual income of £32,475 - leaves £10,000 basic rate band unused.
So after all the deductions and reliefs and the annual exemption have been calculated, then the first £10,000 of the gain at 18% and any remaining gain at 28%

You should both alert HMRC of this sale as soon as possible so they know to expect a capital gain declaration after 05/04/2015


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