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Calculating CGT on part let, part lived in property

Forward planning scenario:

Property purchased in 1996 for £70,000
Main residence for 3 years to 1999
Let for a total of 8 years from 1999 to 2007
Sold for £220,000 in 2007
Total gain £150,000
Asset to be held for 11 years

Ignoring indexation allowance and on the basis of my understanding that
- the final 3 years are tax free
- there is an additional letting relief allowance of £40k
- non business assets held for over 10 years are taxed at 24%
- tax rules won't change!
I have worked out the likely tax bill as follows:

Gain: £150,000

Taxable gain before allowances: £68,182 [£13,636 (1/11th of gain) x 5 (taxable years)]

Less allowances: £47,200 [£40k plus personal allowance]

Taxable gain: £20,982 [£68,182 - £47,200]

Tax @ 24% = £5,036

I look forward to your comments

Many thanks

Sharon Jordan

Replies

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By admin
17th May 2001 19:17

What if spouse takes 50% ownership in 2001?
Would the spouses ownership mean that 50% of the gain would now be treated without the benefit of letting relief allowance or the 6 years tax exemption, bearing in mind that the spouse never resided in the property?

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By Anonymous
18th May 2001 08:27

Correct Jamie
Sorry. The taper relief should be 40%

i.e. Less 40% taper relief to £16908.

Less estimated annual exemption (£7500) to £9408

Which will be charged at your marginal rate of tax i.e. 40% of £9408= £3763.

If the spouse has never resided in the property he/she will not be entitled to letting relief. Where does the spouse live? He/she cannot have a second PPR. Any planning element will need further details!

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By Anonymous
17th May 2001 17:35

Bonus Year?
As the asset was owned on 17 March 1998 you are also entitled to a bonus year of taper relief (the full ten).

Chargeable gain £150K (less indexation which will be negligible)

Chargeable gain after PPR will be (5/11ths) £68181

I'm not 100% but I think you take the letting relief before the taper relief £68181-£40000 = £28181

Less 60% taper to £11272

Less estimated annual exemption (£7500) to £3772

Which will be charged at your marginal rate of tax i.e. 40% of £3772 = £1508

Please note that if the property is in joint ownership bother parties will be entitled to the letting relief exemption and the total gain will be exempt.


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By Anonymous
17th May 2001 17:56

Re: Taper Relief
Should the 60% be the amount remaining chargeable rather than the amount of relief given ?

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By Anonymous
17th May 2001 13:56

Try This...
Proceeds less Cost is Unidexed Gain of £150k. Less indexation from 1996 to 1998 (say) £10k. Therefore indexed gain is ~£140k.

PPR for 6 of the 11 years of ownership reduces gain to £64k, less Letting Relief ( based on your figure) of £40k, gives £24k.

Qualifying period of ownership for taper relief is 9 years ( 1998 - 2007), asset is non business asset therefore chargeable portion of gain is 65% ie: £15.6k. Less Annual exemption of ~£7k = £8.6k at 24% = tax to pay £2k.

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