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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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I moved in to my council owned flat in 1995 and bought it in

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I moved in to my council owned flat in 1995 and bought it in July 1993 under the Government right to buy scheme, this remained my sole home for 14 years.
In 2009 I started to look for a new property and put my flat on the market as I had outgrown it.
In spring 2009 an opportunity arose to purchase my current home and I and moved in August 2009.
Due to lack of interest and lack of income I was reluctantly forced to rent out my flat and it was first rented out in September 2009
I have been renting my flat somewhat unsuccessfully since then due to the state of the housing market with series of losses, bad tenants and very little profit. The flat is slowly starting to look a little tired.
With the improving housing market and the property being currently unoccupied and cleaned after last tennant, I have put the flat on the market once again and I am thinking of dropping the price below market value just to get shut .
I have always declared what small profit I made, if any at all, every year.
I would like to know, if at all, how capital gains will affect me when I sell my property?
Thanks for your question. I am Sam and I am one of the UK tax experts here on Just Answer.
You will have a capital gain position, as its been more than 18 months since this ceased to be your main residence.
The capital gains will be the sale price less the purchase price, this forms the initial capital gain.
From this initial gain, you can then deduct the costs to buy and sell (so legal fees estate agent fees etc) and also the costs for any capital improvements you have undertaken since the purchase date.
Capital costs are improvements such as a new bathroom or kitchen.
Then with the amount left over, your tax reliefs are considered.
As this was your main residence from 1993 to 2009 - then this period of time PLUS the last 18 months of ownership will form an exemption
So approx. 192 months plus the 18 months = 210 months which is divided by the total period of ownership (which is approx. 252 months x gain.
This will enable the exempt element to established and with the figure left over, then private lettings relief is considered (as this was your main home, AND you let it out to tenants, and have declared the rental income to HMRC)
This will have to be time apportioned for the time that the property was actually met out, and will never exceed £40,000 as its 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 (but this will be a lesser figure as you did not let it out for the whole period of time from when you left the property to the dale date)
Then with the figure left over, the first £11,000 is exempt as this is your annual exemption allowance, and the final figure is the one chargeable to capital gains tax.
Capital gains tax is a mix of 18% and 28% and this is determine by your usual annual income allowance.
If you annual income is in excess of £41865 a year then the gain will be charged at 28% only
If your annual income is less than £41865 - then this would allow you to have unused basic rate band, for example if your annual income was £30,000 a year then you would have £11865 unused basic rate band, and this allows then the first £11,865 of the gain to be charged at 18% and any remaining gain at 28%.
Make sure you alert HMRC of the sale when it is complete, so they can arrange to issue you with a self assessment tax return at the appropriate year end. (so if you sell before 05/04/2015, then HMRC will issue you with a self assessment tax return after 06/05/2015) and this needs to be beak with HMRC by 31st Oct 2015 if filing in the paper version OR 31/01/20165 if filing online.
Any tax due is paid also by 31/01/2016.
Let me know if you have any follow up questions
Customer: replied 3 years ago.

Hi Sam;

I have made a number of improvements including new bathroom , new kitchen, new windows probably totalling £20000, but I do not have receipts for all of the works undertaken, as I was not ever expecting to rent my property out.

will proof of receipts be required?

whilst understanding about 85% of your answer there is a lot i will never be able to follow.

When I sell my flat would it be advisable to contact a solicitor or Accountant to do my tax return?

Thanks Shaun.

Hi Shaun
Thanks for your response and the additional information.
If you do not have receipts then try and see if your bank statements detail any of the works carried out, or that you get in touch with the businesses that undertook the work, most will be happy to provide duplicate receipts, as you do need some evidence of the costs involved, but all those works you list, are allowable.
Capital gains can be complex (when you have a mix of it having been your main home and then rented out) and my answer is really designed to advise you of the reliefs you are due - and give you a general idea of how the deductions and reliefs are applied.
You can either engage an accountant to complete the return for you, or come back to Just Answer, as we can help. And, if you prefer you can always ask for me Sam Tax, in any new post, and the other experts will leave the question for me to answer.
Just start the ball rolling by advising HMRC once the property has been sold.
Let me know if you have any further questions, but if I could trouble you to rate the level of service I have supplied, it would be appreciated, as this ensures I am credited for my time.
Sam and other Tax Specialists are ready to help you