How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4948
Type Your Tax Question Here...
bigduckontax is online now

Hello there, I have a question about whether I can put a

Customer Question

Hello there,
I have a question about whether I can put a £40,000 loss on my Devon bungalow against the capital gains on my London flat. The bungalow was bought in 2007 for £230,000 with additional costs of £10,000 extra land and £10,000 for borehole, drainage and driveway. This was bought as a development for which I have planing permission but have never done it myself due to lack of funds, it is now going to auction tomorrow with a predicted price of £215,000.
I also own a London flat bought in 2004 for £285,000 which is now worth £600,000 with a £260,000 buy to let mortgage on it.
I have lived throughout this period at my partners house in Fulham so the London flat is
always let out and the Devon property has also been let out about 50% of the time.
So my question is can I put the loss on the bungalow against the capital gains on the London flat?
Many thanks,
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.

Hello Sarah, I'm Keith and happy to help you with your question.

If you make a capital loss it can either be offset against any capital gains in the tax year the loss was made or carried forward to future tax years. You do not have to utilise all the loss made, if you do not use it all the balance is carried forward. So, in essence, I have answered your question; yes you can offset a loss against a gain. Please remember that you have an Annual Exempt Allowance (AEA) of 11K so losses should only be used to reduce gain to that position to avoid losing this 'Use it or loose it' allowance.

Assuming that you lived in this house as your sole or main domestic residence for a period you may be entitled to Lettings Relief (LR) of up to 40K. The loss on your bungalow will be in general terms 230K + 10K + 10K = 250K - 215K = 35K loss. Your question has the loss figure slightly wrong.

The London flat, which you say you have never lived in will not attract LR so the gain would be 600K - 275K = 325K. Knock off the AEA of 11K gives 314K. Offset by the bungalow loss leaves you with 279K liable to Capital Gains Tax (CGT) which will be levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale. Forget about the mortgage, it does not come into the CGT calculations. The interest element is, however, allowable to offset the rental income for UK Income tax.

I do hope I have been of assistance to you. This is only a very general answer as far as the calculations go, but it will give you an idea of your position.

Customer: replied 3 years ago.

Hello Keith, Thank you for your reply. Please could you clarify ; does the AEA mean that you can only claim a loss up to 11K in one year not any more even if your loss is £35,000.

I don't have any other assets so I would not make capital losses in any other years.

Thank you Sarah




Expert:  bigduckontax replied 3 years ago.
No, Sarah. The AEA is a use it or loose it allowance which most taxpayers have to offset any gain for CGT purposes. You do not have to use it. You will see that for you I utilised it against the gain on your London property on the assumption that both sales took place in the same tax year. If you just sold the bungalow making a loss it would not come into play at all.

Have I helped, I hope so? Please be so kind as to rate me before you leave the Just Answer site. Of course, if you have any more follow up queries I would be delighted to assist.
Customer: replied 3 years ago.

Lastly, are my calculations correct - Gains subject to capital gains tax on London flat (i have calcuated this with all the correct exemptions so don't worry about this figure): £177,750 - loss on bungalow is 35,000 = £142,750 so my capital gains due if I sold both in the same year would be £25,695. Thank you, once I have this I have the questions answered.

Expert:  bigduckontax replied 3 years ago.
No Sarah, I fear you are slightly out. Assuming that you have taken your AEA into account in your 178K less the 35K loss on the bungalow leaves 141K liable to CGT. Your calculation of 26K is correct if you are taxed at 18% on the gain, but the higher rate is 28% {or a combination of the two rates) depending on your income including the gain in the year of sale is always possible. Worst case scenario is a tax of just under 40K should the whole gain attract the higher rate of taxation.