Hi,
I have a client who is selling a property that they have lived in and then at a later date rented out. They now wish to sell the property and I need to confirm the capital gains tax - this is the first time I've experienced the senairo below and don't want to give them incorrect information:
They bought it in 1999 for 75,000 and are looking to sell for about 160,000.
They lived in it from October 1999 to May 2003. I think I’ve read somewhere that you can take the value at the time that you rented it out – do you know if this is right. Also I understand you can deduct the number of years that you lived in it for along with the last 3 years off of the gain.
So – 9 years renting out – lived in it for say 4 years plus the last 3 years = 7 years so they’d pay tax on 2/9ths of the gain – they can also deduct what they paid for central heating and what they’ve just paid out to refurbish.
If the gain was 90,000 – less 3,500 central heating less 1,400 refurbishment, they'd pay tax on 20,000 (2/9ths) less 4,900 – i.e. 15,100 @ 18% = 2718 .
Any advice would be appreciated.
Thanks
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Replies (4)
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78/156 will be exempt (PPR relief) and the balance of the gain will be subject to letting relief. If it's joint, no CGT due. If it's sole then tax is due on £2500 (subject to annual exemption of £10600)
£85100*78/156=£42550.L.R. max £40k. Balance £2550.
It looks like
PPR will be available for the period October 1999 to May 2003, assuming they bought the property in October, if not they may be entitled to claim a larger proportion of the gain, PPR will also be available for the final 36 months of ownership.
Lettings relief is the lower of (a),(b) and (c) below.
(a) PPR £85,000/156*79 months = £43,085
(b) Lettings relief £85,000/156*77 =£41,955 (assuming let for rest of ownership period to Oct 2012
(c) and £40,000
So Proceeds £160,000
Less cost (£75,000)
Gain £85,000
Less PPR (£43,085)
Less Lettings relief(£40,000)
Chargable gain £1,915 covered by annual allowance, also allow any capital improvements to the property during ownership, and any fees associated with the purchase and the sale.
Regards
MtF
Purchase75,000 14/10/1999Disposal160,000 14/10/2012Total Gain81,500 PRR40,75078156Capital Gain40,750 Lett Relief39,733 Qual Days2315Net Gain1,017 CG Allow10,600 CGT CGT CGT Bill
There is clearly no CGT laibility. I assume it is a sole owner and the GCH was added not replaced. The refurb is not a capital item. Not that it makes any difference.
You facts and dates are a bit thin and your assumption that any gain would be taxed at 18% is not correct. The GCT rate would depend on the clients marginal tax rate.
Regards Peter