Main residence

Main residence

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A clients father has asked a simple (yet confusing) question. They have just sold what was their main house having moved out of it and into a bungalow they built in the garden. The main house was rented for the last few years. Facts are as follows (rounded for ease);
• Purchased 1983 £40k
• May 09 moved into a bungalow they built in the garden.
• In May 09 original property was valued at £425k with the full garden, and £375k after splitting it off (they have contemporaneous written proof from agents – so a £50k reduction which is base cost for bungalow land
• Main property rented out Sep09-Jul13 (all declared on SATR)
• Jul-13 title deeds split and main property put on market at £400k and sold for £375k in Mar-14
Prima facie there is no gain due as the “trigger” for calculating tax would be the point the properties were split and so gain attributable to the letting – ie nil as it was worth £375k in 2009 when letting commenced and sold for £375k

My view is that it should go on the TR as the sale price is large enough to warrant even though no gain.

I would be grateful if others could confirm or do I need to go back to the 1983 price of £40k, work out full gain – then work out what attributable to the letting less deemed residence etc. (which is going to mean no tax due anyway as it was lived in for 24 of 28 years, then deemed residence so after annual exempt amount gain would be nil anyway (using exact figures))

Any steer from learned friends with experience would be most welcome!

Replies (3)

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By duncanedwards
16th Aug 2014 11:29

Not sure ...

 that the split of the properties was a chargeable disposal.  Also not sure (therefore?) that base cost is £375k.  That looks like you want it both ways - no gain calculated at split but tax-free uplift in base cost.

 

Possibly makes little difference to ultimate outcome given other reliefs.

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By mackthefork
16th Aug 2014 11:28

Hello there, my thoughts

I would say base cost of the main property will be

£40,000 x (£375,000/425,000) = £35,294 the remaining £4,706 being the base cost of the land for the bungalow.

That being the case the gain on disposal of the main property wold be

Proceeds of £375,000 less £35,294 = £339,706

Of this, put very crudely; (assuming purchased March 1983)

PPR Relief for 29/31 = £317,789 Apr-1983 to Mar-2009 + 3 years (as I said approx. for simplicity it should be done to the nearest month with fees and improvements added to the computation) 

Letting relief of 18/372 = £16,437 (period from Sep-2009 to Mar-11) remember this can never be over £40,000,or higher than the PPR available.

Gain before annual exemption taken into account is £5,480 (£339,706-(£317,789+£16,437))

I think he built the bungalow for himself therefore no disposal and no gain at that point.

Regards

MtF

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By Marion Hayes
17th Aug 2014 05:56

Ownership?

You say they?

Was it owned and then sold by a married couple?

If so the letting allowance is doubled,

Yes I would declare it on tax return, not least because it explains why the rental income came to an end

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