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Sam, Accountant
Category: Tax
Satisfied Customers: 14154
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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, I purchase a flat in June 1999 for £123,500. It was

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I purchase a flat in June 1999 for £123,500. It was rented for 5 years and then I moved there July 2004. I lived there until March 2012 when I moved into a house with my wife. It has been rented out since. My mortgage product finishes in September and then I will look to sell the flat. Current market value is circa £400,000. How much CGT would I have to pay and could this be negated if I were to move back in to the flat as my PPR? If so how long would I need to live there?
Hi David
Thanks for your question
You cannot better your position by moving back into the flat at this stage and already have the best position you can possibly achieve. You cannot avoid the fact that capital gains are going to be a consideration as you had a time - for more than 18 months when this property wqa snot your main residence.
The fact you lived here - which allows your private residence relief for the time that you lived here AND the last 18 months of ownership, and as you ALSO let it out (and I assume declared all rental income to HMRC) will also then be a consideration for private lettings relief.
So the position as things stand today is as follows -
You have owned the property for 191 months and this was your main residence for 93 months - which can also have the last 18 months added to it - so a total of 111 for private residence relief.
The gain is the sale price less the purchase price - which determines an initial gain of £277,000 (from this you can deduct the costs to buy and sell and also the costs for any capital improvements)
But to move forward with this figure
Private residence relief 111/191 x £277,000 = £160,979 of the gain is exempt
So £277,000 less £160,979 = £116,021
Then we also have private lettings relief to consider which is the lesser of
1) The amount of gain on which private residence relief is due - so £160,979
2) The amount of gain left over after private residence relief has been deducted - so £116,021 OR
3) £40,000
As the lesser amount is 3) £40,000 this is then deducted from the gain remaining - so £116,021 less £40,000 = £76,021
Then the first £11,100 is exempt (this is your annual exemption allowance) leaving £64.921 liable to capital gains tax.
The rate of capital gains is either a mix of 18% and 28% or just 28%
This is determined by your annual income, if you are a 40% or higher taxpayer then the gain is charged at 28% = £18177.88 but if you are just a basic rate taxpayer (income less than £42,385) then the equivalent of the unused rate band allows that gain at 18% and any remaining gain then at 28%
So if you had an annual income of £20,000 then you would have £22,385 unused basic rate band - which would allow the first 322,385 f the gain at 18% and any remaining gain at 28%.
It would not be prudent to transfer this flat into you and your wife's joint names, as you would lose half of the private residence relief.
You should declare the sale to HMRC once completed unless you already complete self assessment (which I imagine you do, as you are in receipt of rental income) in which case you just declare the gain on your year end self assessment
Let me know If I can assist any further with this matter
Customer: replied 2 years ago.

Thanks Sam.

That's really helpful. If I spent £20k on renovations (new bathroom, kitchen, complete refurb) in 2010 would this count towards capital improvements. If not, what does?

Buy/sell costs - does this include legals, stamp duty and agents fees?

If I'm paying £2,000 pa in service charges can this be offset at all?



Hi David

Thanks for your response

The new bathroom and kitchen certainly would, but perhaps not the actual refurb - for a cost to be considered a capital improvement - it has to either fully replace what existed and enhance the property - such as new kitchen or bathroom, new roof, an extension or conservatory - double glazing or complete new central heating etc etc

Yes buy and sell fees do include stamp duty, estate agent fees and legal fees

No the service charges are to be offset against rental income

Let me know if I can be of further assistance but it would be appreciated if you could rate the level of service I have provided (or click accept)



Sam and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks Sam.

One final thing...

When the flat was originally purchased in 1999 it was jointly owned by my sister and I. In June 2005 she gifted me her 50% share which at the time was valued at £103,000 (total flat value £206,000)

Does this have any bearing on the CGT calculation?



Hi David
Thanks for your further questions
Yes it will, as your sister would have had a potential capital gain had this also not been her main residence for the whole period between 1999 and June 2005 which I assume she has declared to HMRC and also means that you are considered on just a half share from 1999 to 2005 rather than the full share. Then 100% share from 2005 to date of sale (on which tax reliefs are still due for the time this was your main residence and the private lettings consideration too)
Customer: replied 2 years ago.

Thanks for your help

Hi David
You are very welcome