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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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2 years ago we put our house up for sale looking to downsize

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2 years ago we put our house up for sale looking to downsize at the same time we had an opportunity to buy a property which we could move into when we sold our house we financed this by remortgaging the property which was for sale. The second property has been used by a friend of the family who pays the bills on it and the mortgage. Our home still hasn't sold so we intend to do some work on it before putting it back on the market. How do I inform the tax office about my position and how will any tax liability be calculated ? Thanks Dave


Take a look at HS283 here for information on the main residence and Capital Gains Tax.

You could have made an election for the first property to be treated as your main residence within two years of buying the second to protect it from CGT but, since it has effectively been occupied and not available for your use, that probably wasn't an option.

For disposals of property which has been the main residence of the owner at some point during their ownership of it which take place after 5 April 2014, the last 18 months of ownership is given as a tax free period in addition to the period that you lived in it regardless of its use during that time.

If a property has been let, then letting relief may be claimed for any period not covered by other reliefs such as main residence relief or the last 18 months of ownership relief. You could argue that your property has been let since your friends have been paying the mortgage and other bills in which case you would be able to claim letting relief for six of the twenty four months to date since you left the property. The other 18 months would be covered as described above.

A combination of main residence relief and letting relief will probably cover any capital gain and you should refer to HS283 for information on calculating that. I can help with that if it is a concern. You don't need to inform the tax office of the sale of a property until after the end of the tax year in which it is sold.

You really ought to have told the tax office that the property has been let, albeit informally, even though you are unlikely to have made a profit on the rental and so there is probably no tax to pay. If I were you, I'd write to the tax office here (the first address near the bottom of the page) to inform them of the situation before you register for self-assessment as that may not be necessary. You should tell them how much rent has been received in each tax year the property has been let and how much was paid out in expenses. Take a look here for information on deductible expenses and here for the criteria for registering for self-assessment.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.
Thanks tony just one more thing can the interest I pay on the remortgage be offset against the payments I receive in "rent" from our friends in the second property. I've read that you can be fined by the HMRC for not declaring this type of situation is this likely ?
The mortgage interest can certainly be offset against the rental income along with expenses covered by the headings in the Which? link I gave you in my previous post.

There will only be a problem with tax penalties if you owe any tax as they are tax geared. Take a look here for information on that.

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