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bigduckontax, Accountant
Category: Tax
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Please help me. My house burned down in January. Now the

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Please help me. My house burned down in January. Now the insurance company is offering me some 40% of its pre-fire value as compensation for the diminution in value and we intend to sell what's left of the house (a lot of outbuildings remain standing). Someone will probably buy it and knock it all down to build their own house.
Is either sum - the money from the insurers or the money we get for what's left of the house - subject to CGT?
It was our sole residence from 1997 until the fire. We are currently living in a rented house
Hello, I'm Keith and happy to help you with your question. I am so sorry to hear of your conflagration, I do hope no one was injured.
The money from the insurers is subject to CGT, it is deemed to be a disposal. Here is HMRC advice on the matter:
'Capital Gains Tax is a tax on the profit or gain you make when you sell or ‘dispose of’ an asset.
You usually dispose of an asset when you cease to own it - for example if you:
Sell it
Give it away
Transfer it to someone else
Exchange it for something else
Receive compensation for it - for example you receive an insurance payout when an asset has been destroyed
It's the gain you make - not the amount of money you receive for the asset - that's taxed.'
In any event as it was your sole or main domestic residence you are entitled to Private Residents Relief which reduces any gain by 100%.
Customer: replied 3 years ago.
I'm now confused. You say the money is subject to CGT but that I would get 100% relief. Are you saying that I WOULDN'T have to pay CGT?
Does this apply to both sums?
If I buy another house in between receiving the two sums, would this make any difference?
All such disposals of property attract CGT if any any gain is made. Not many people realise this. However, if the property in question was your sole or main domestic residence the gain attracts Private Residence Relief (PRR) which reduces any gain by 100%. You won't have to pay any CGT at all in these transactions.
Your purchase of another house starts the process all over again and GCT kicks in on ultimate sale, but again PRR would reduce any gain to zero.
Customer: replied 3 years ago.
So to recap. I won't end up paying any tax on either payment.The purchase of the second home doesn't affect this?Even if it precedes the disposal of the housing plot?
No, you won't be liable to tax on either payment as PRR reduces them to zero.
What you do with the money is in irrelevance. Everybody knows that you must have somewhere to live, it is just common sense, and as I said what or how you use the funds and when does not matter in the slightest.
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Thank you for your support.