Hello
I have an exam style question for you all.
I have a client who has owned a property which is under offer (assumed sale date Oct 13), for 52 months in total.
Of these 52 months, it was rented out for 19 months (not consecutive)
The last 36 months will count for Private Residence Relief. Removing the last 36 months from the equation takes us back to Oct 10 - I am not sure if this is how you do it.
So the CGT is based on the following??
1. Date of purchase to Oct 10?? = 16 months.
2. During this time the property was rented June 09 - Oct10.
3. Do I apply the fraction 11/16 to the Gain for the exempt amount?
There is another statement on the HMRC helpsheet for PRR which states that 'other periods of absence from the dwelling house may be treated as periods of residence if.....before and after the period there is a time when the dwelling house is your only main residence...absences totalling no more than 3 years'
This would apply to my client as they only went travelling, and lived in the property either side of their travels. Do I have the right end of the stick? Will there be no CGT to calculate.
I wish I had kept my exam notes as I am sure it was quite easy at the time!!
Many Thanks
Leigh
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Replies (14)
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Hi Leigh
You'll have to give us a complete timeline of the use of the property as in:
- periods occupied by the owner
- period the property was rented out, and
- periods the property was empty.
I presume that this house was the only residence owned by the client during the period in question?
Also, did the property have substantial grounds surrounding it?
Also, if prior to occupying the property there was a delay in the owner occupying the property due to the house being built, renovated, or their previous property was awaiting sale.
There are extra PPR reliefs available if the owner lived in the property, left and then returned.
Also there may be lettings relief claimable.
Forget the exam notes - reality is never part of the syllabus.
The way you are calculating it looks wrong to me.
So what period(s) is he/she claiming residence (and thus PPR relief) for. Only if he/she can so claim does the last 36 months exemption apply, and likewise Lettings Relief.
Good point
So what period(s) is he/she claiming residence (and thus PPR relief) for. Only if he/she can so claim does the last 36 months exemption apply, and likewise Lettings Relief.
Good point. What matters for PPR relief (and a possible claim for lettings relief) is the periods of actual occupation and what is more the quality of that occupation. Just flitting in for the odd month here and the odd week there will not be enough.
CGT on Investment property
As the OP has stated that it was an investment property, I suspect that it was never occupied by the client as his residence and with only 19 months let out of 52 in total, I suspect that it may have been a poor investment which the client is hoping to offload now that property prices seem to be improving.
If so, the only relief available against the gain will be the annual exemption of £10,900.
And quite tight too. Tell your client to just pay the tax.
All these Slumlords and buy-to-letters mean 1st time buyers are now 40 years old!!
End of day rant over........
Thanks for everyone's responses and sorry for the late reply. I hope one of you can still help!
Here's the time line
1st March 2007 - 14th June 2009 - lived in property and this was his only residence.
14th June 2009 - 4th Jan 2011 - rented the property out - still his main only residence - went travelling
5th Jan 2011 - 20th June 2012 lived in property
21st June 2012 to present - rented property out - moves in to new property (so has 2 homes from 21st June).
Sale date estimated to be by end Oct 13
A step by step guide would be fabulous if anyone can spare the time to detail how to work through CGT comps (for investment property).
Many Thanks
Leigh
Have you read HMRC's Help Sheet HS283 on the subject? http://www.hmrc.gov.uk/helpsheets/hs283.pdf
Hi King_Maker
Yes I have read the helpsheet but it did not really clarify anything...just raised more questions really. As he was not absent for > 3 years does the following apply?
The qualifying periods of absence are:a. absences for whatever reason, totalling not more than three years in all ...so in essence the property would be his PPR for the whole period of ownership?I am sure I am making it more confusing than it actually is. Many ThanksLeigh
It looks like your client does qualify for PPR relief.
From your time line data, the rental periods have to be removed as the property was incapable of being his residence.
The easiest way, IMHO, is to work backwards from the projected sale in October 2013.
So, briefly :
1. October 2010 - October 2013 = 36 months Exempt (last 36 months of OWNERSHIP).
2. Jan 2011 - June 2012 = (say) 18 months Exempt (actual PPR).
3. March 2007 - June 2009 = (say) 16 months Exempt (actual PPR).
Total period of ownership is March 2007 to October 2013 = (say) 80 months.
Exempt periods = 70 months. Therefore, non Exempt = 10 months.
Taxable = Gross Gain x 10/80ths.
Deduct Lettings Relief (up to £40,000)
Deduct Annual Exemption (2013-14) of £10,900.
Tax due at 18% or 28% (or a combination of both).
You will need to crunch the exact numbers.
If the client is married (or Civil Partnership), an inter spousal transfer prior to sale may be advantageous.
Thats brilliant king_maker! Exactly what I wanted and makes perfect sense now.
Many Thanks.
Is that correct?
Period 2 stated above falls within the last 3 years which are given automatically.
In the example the 18 months in period 2 have been given twice.
Shouldn't it be 52 months ppr?
June 09 - Jan 11 should be exempt as well
by virtue of TCGA s223(3)(a) as the client left & came back and had no other residence
[Edit} but restricted to June 09 - Oct 10 as the rest will be in the final 36 months. So apparently entirely exempt.
1st March 2007 - 14th June 2009 - lived in property and this was his only residence. s223(1)
14th June 2009 - 4th Jan 2011 - rented the property out - still his main only residence - went travelling s223 (1) & (3)(a)
5th Jan 2011 - 20th June 2012 lived in property s223 (1)
21st June 2012 to present - rented property out - moves in to new property (so has 2 homes from 21st June). s223 (1)
Sale date estimated to be by end Oct 13
I make it that the entire gain is covered by PPR relief alone.
The first rental period is wiped out by the PPR relief claimable under s223(3)(a) of TCGA 1992 (moved out but then moved back in again in less than the maximum allowed of 3 years absence for any reason).
The second rental period is wiped out by s223(2)(a) - last three years of ownership as property had, at some time, been the main residence.
All that is left is the period of actual residence which is also covered by s223(2)(a) - periods of actual residence are exempt.
There is, therefore, no need to make a claim for lettings relief.
My calculation is based on the client selling the property on 31 October 2013.
This also presumes that the quality of the occupation for both periods that the property was occupied was good enough to meet the criteria. You should get your client to confirm that they paid council tax at the property and can furnish utility bills for the property in their names with charges being levied at levels consistent with that of an occupied property.
Also, be aware that HMRC would be able to access records kept by other government departments that may contradict your client's claim that he was living there but instead still renting (a tenant making a housing benefit ciaim or paying council tax there for example).