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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I'm looking to sell my property. The property was acquired

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I'm looking to sell my property. The property was acquired in 2002. I moved into rented accom in Dec 2014 and went on the acquire that in June 2015. I remortgaged the first property to fund the acquisition of the 2nd property. I rented the first property in that time. I have now had an offer on the first property and am trying to work out if there would be tax payable and, if so, how much. Some comments on property 1:
Acquired 2002 for £222k.
Work on property circa £125k (Windows, extensions).
Remortgaged based on valuation of £500k in June 2015 (£375k interest only loan given).
Offer on property of £455k.
If I have to pay tax on the sale of £455k against a cost of £347k (cost plus extension) then I assume this would be circa £50k (I am a higher rate tax payer). This would leave very little cash left for me after repaying the mortgage (and early redemption) and estate agent fees. Perhaps I may end up with c£25-30k.
However and alternative view provided to me is that I actually could address this differently. At remortgage I have "sold" the property at £500k and as my first property and sold within 18 months then no tax is payable. At sale now if I accepted £455k I would actually have a loss of £45k that I could put on a tax return.
The swing in scenarios to my cash and tax position is huge. Which, if either, is correct?

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Mortgages and values of property when it ls let or when you move out are irrelevant as far as calculating a capital gain is concerned. It's more straightforward than that.

If you sell the first property for £455,000, you will make a gain of £347,000 (£455,000 - £222,000 - £125,000). That part of the gain covered by your occupation of the property will be tax free as will the gain for a maximum of the last 18 months of ownership when you weren't living there. So, based on what you told me, if you sold the property in November 2016, only about 6 months of the gain (June 2016 to November 2016) would not be covered by exemptions but it would probably be covered by letting relief. Take a look at Example 9 in HS283 here. HMRC may ask to see receipts and invoices for the improvement work. Photographic evidence may help.

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

Customer: replied 1 year ago.
Sorry, there are elements here I don't understand. How do I make a gain of £347k? I bought it for £222k. I sell it (in theory) for £455k. In gross terms that would be £233k gain however there was also improvement works of £125k, so I would argue the gain at the maximum would be £108k. Could you confirm that understanding as I don't understand why the cost to me of improving the property while I lived there would be deduced from the purchase price.Assuming that is correct, are you then saying that the gain is spread over a period of which 6 months relates to the period of over 18 months from renting out? Is the profit spread from acquisition to disposal (April 2002 to Nov 2016, ie 14.5 years, in which case there would be an annual gain of £7.7k and therefore the taxable element would be £3.85k) or is it spread over the 2 year period so the taxable gain element would be £27k? Or have I misinterpreted again?From what you say, if I am correct in either of the above scenarios, the tax position is significantly better than I had originally thought! There are some further complications behind this but those are issues I will pick up if I decide to sell and, again, if either of the above are correct, that is now likely!Mark
Customer: replied 1 year ago.
Sorry. Would I also be able to use CGT allowance against this too? What's the annual allowance?

I do apologise. The gain will be £108,000. For some reason i took your figure of £347,000 even though I typed the three relevant figures in brackets.

The gain is spread out over the entire period of ownership as Example 9 in HS283 clearly shows. I usually divide the gain into complete months and in your case there will a taxable gain for 6 months if you sell by November 2016. That will probably be covered by letting relief so you should have no taxable gain. Even if you did have a taxable gain after deducting letting relief, the first £11,100 will be tax free due to the annual CGT exemption.

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Customer: replied 1 year ago.
Thanks - think I've got it now I've found the specific example via the link.