My client is planning to sell her main residence. She has only recently moved into the property, having rented it out for several years during her period of ownership. As I am a sole practitioner, and haven't dealt with any property sales before, it would be most helpful if anyone is able to cast their eye over my rough calculation of the taxable gain, and let me know if it looks accurate or if there are any glaring errors!
Expected Sale Price £600,000
Costs £300,000 (includes purchase price, stamp duty, solicitors' fees and capital improvements during time of ownership)
Gain on sale: £600,000 - £300,000 = £300,000
Period of ownership: 14 years, of which my client lived in the property for the first 3 years of ownership, and the last 2 years of ownership. It was rented for 9 years.
Private residence relief: 5/14 x £300,000 = £107,143
Letting relief: £40,000
CGT Exemption: £11,300
Chargeable Gain = £300,000 - £107,143 - £40,000 - £11,300 = £141.557
The gain of £141,557 will be subject to 18% tax to the extent that it falls into my client's basic rate tax band, and 28% to the extent that it falls into the higher rate / additional rate band.
Any comments, or confirmation that the above looks correct, would be much appreciated.
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Replies (12)
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Looks about right on a yearly apportionment. You might want to narrow that down to months.
Many thanks. I've simplified a little hence the use of years rather than months, and will make sure I use months for accuracy in my final calculation.
You also need to consider periods of deemed occupation
see -
https://www.gov.uk/government/publications/private-residence-relief-hs28...
Thank you. As my client has lived in the house as her main residence for the final 18 months of ownership, then she already has private residence relief for this period.
At all other times, she was either living in the house as her main residence (so has private residence relief) or was letting it out so deemed occupation would, I believe, not be applicable.
Read through the link again. Deemed occupation over rides the letting period. That's a good thing because letting relief is restricted to £40k.
I've got the taxable gain down to c£77k but it could be less.
That's great news that the taxable gain could be even less than I had thought. But I must be missing something. I have reread the link as suggested, and cannot see how the "deemed occupation" can override the letting period, when my client cannot be deemed to have been living in the house while it was let (she lived elsewhere) and the final 18 months, which would be "deemed occupation" did not cover a letting period - so she already gets relief for this via private residence relief.
My client's situation seems to be most like Example 9 in the helpsheet, and my calculations seem to tally with theirs (although I have taken £40,000 as the lowest of the three figures for letting relief).
She can get an extra 3 years for any reason, and extra 4 years if she was working in the UK away from home or unlimited period if she was required to work overseas.
The catch is she can't have had any other qualifying residence during these periods.
OK, I had discounted those options as she lived in a different house that she also owned, and which at the time was her main residence, during the period that the property in question was let.
Hopefully that means I'm on track with my original calculation!
"Why?" is a good question in tax. If you knew why the owner was not living in the house for the middle nine-year period, you'd probably be a long way towards determining how many 14ths PRR exempted.
On that facts as presented, somewhere between 5 14ths and 12 14ths may be exempt.
Other facts (eg marital status, whether she/they owned other property) could also be important. It could be that all 14 14ths are exempt. It could be that no 14ths are exempt.
Sorry - missed your additional info. 5 14ths is sounding favourite, but why did she move about so?
My client was living with a partner in a different property that they owned together. She split up with her partner, sold the property and moved back to the original residence. 5/14ths would appear correct in these circumstances (no CGT was paid on the sale of the other property).
