Share this content

CGT due on sale of property

Property was lived in before renting out, at which point it was revalued - does this count?

Didn't find your answer?

Hi, my client bought a property in 2003 for £102,000and lived in it until 2007.  During this time they extended the property and then it became a buy to let, and the property was re-mortgaged.  The valuation on the property at this point was now £180,000.  The property has now been sold in 2022 for £201,000.

HMRC guidance on the matter simply seems to imply that the CGT calc would be simply £201,000 less £102,000, less the costs of the extension/legal fees etc (£25,000), less PPR of  4/19ths, giving a gain of £58,421 before the annual allowance.

However had the property been sold in 2007 for £180,000 (the amount it was valued at after the extension etc) there would have been zero cgt as it would have been the main residence. 

If the capital gain was based on the valuation of £180,000 when it was first let, the CGT would be significantly less.

My question therefore is, should this valuation (which was professionally valued for mortgage purposes) be taken into account when looking at the CGT position?  It seems unfair to me that the CGT has been triggered primarily by the increase in value which was attained during the period of residence as a result of the extension etc, and that the increase in value during the period the property was let out was only £21,000.

 

Replies (18)

Please login or register to join the discussion.

avatar
By cohen
25th May 2022 11:44

No, the valuation doesn't matter.
The gain is spread evenly over the period of ownership.

Thanks (9)
avatar
By gillybean04
25th May 2022 11:54

When law is involved, fair doesn't come into it.

Thanks (4)
avatar
By David Ex
25th May 2022 12:35

AndrewB2499 wrote:

However had the property been sold in 2007 for £180,000 (the amount it was valued at after the extension etc) there would have been zero cgt as it would have been the main residence. 

 

Two things matter for tax - the facts and the law. You can’t substitute a set of theoretical facts to lower your tax liability and you can’t make up law to suit specific circumstances.

Seriously, if that’s your understanding of how tax works ….

Thanks (6)
avatar
By adam.arca
25th May 2022 12:31

But, in any case, what's unfair about this scenario?

Cost @ acquisition - fact
Selling price - fact
2007 valuation - opinion

In what way should an opinion in 2007 have any bearing here? I think the fact the value has barely increased in the 15 years since tells us a lot about the worth of that opinion.

Thanks (6)
avatar
By fawltybasil2575
25th May 2022 13:29

@ AndrewB2499 (OP).

The CGT legislation COULD be amended to take account of the apparently unfair factor to which you refer: the only reason for its not doing so is that it would create substantially disproportionate problems in terms of [re valuation figures] (i) the costs thereof and (ii) the probability of disputes. There are of course “winners and losers” from the time-apportionment principle.

Of course your client would, under normal circumstances, have had the option to sell the property in 2007 in any event, to thereby avoid CGT (and if he wished, of course, to reinvest in another property, to thereby avoid the perceived unfairness, albeit costs of acquisition and sale would marginally impact upon that option).

Looking at the figures in your question, and whilst there are of course regional variations in house price movements, the 2007 valuation looks “about right” – it is the 2022 sale price which appears materially too low, and I would have expected around £245k/£250k (again recognising that regional variations would affect such figure).

Basil.

Thanks (0)
avatar
By Paul Crowley
25th May 2022 13:49

Valuations are usually done for a purpose
In this case temptation is to overvalue to get best price on interest rate, and valuers always ask the purpose of a valuation, and three valuers will give three opinions.

It is not difficult to see why the taxation rules aim to avoid valuations where possible

Thanks (1)
Stepurhan
By stepurhan
25th May 2022 14:27

Look at it from the other direction.

If you had an equally professional valuation done immediately prior to this sale, and that said it was worth a lot more, would you be happy to pay CGT on the valuation and not the actual sale price?

I'm pretty sure your argument would be that the actual sale price proved the valuation was overstated. What proof do you have the same isn't true of that earlier valuation?

Thanks (3)
avatar
By JD
25th May 2022 14:46

Respectfully, perhaps it would be wise to pass this one over to somebody a little more practiced in the art of CGT.

Thanks (5)
Replying to JD:
avatar
By Wanderer
25th May 2022 15:10

Indeed, particularly as there appears to be other failings in the OP's calculations.

Thanks (0)
paddle steamer
By DJKL
25th May 2022 14:50

Why one should never trust valuations.

In 1997 we bought our house for £105k. (valuation in 1997 £120k) Prices generally rose and in 2004 we wanted cash to buy our holiday house, we went to bank (Nat West) who instructed a valuation. About a week later bank came back saying could not lend, valuer had reported £120k. At this juncture I threw a wobbly, quite rightly as it transpired, the valuer had not visited us and instead had merely done a drive past valuation of the wrong property, a tenement flat at the bottom of our street rather than our double upper Victorian villa at the better end.

I have had some even better ones re commercial property, in 2016 had a building valued for our bank at £2.25m, we sold it in June 2021 for £7.95m, no changes, no new planning, the 2016 one was just nonsense.

Thanks (0)
avatar
By dgken
26th May 2022 02:38

Yes, the tax is proceeds less cost, less capital expenditure (assuming not claimed as revenue expenditure on a tax return)- it's on a straight line basis (not from the date let), no allowance for valuations at any other time ie when first let. Don't forget the final period claim as it was a main residence at one point 9 months at the end. Report in two months with also the requirement to estimate of tax to decide the banding (18/28%) and finesse it in the tax return when that is eventually filed in the reporting year.

Thanks (0)
avatar
By Tax Dragon
26th May 2022 05:29

It's s223(2) TCGA 1992 if you want to read the time apportionment rule in the law - but I agree with the suggestion that sharing the work with someone more familiar with that section and the related ones would be a good demonstration of professionalism. You have a duty of care.

Thanks (1)
avatar
By JMAnd
30th May 2022 09:57

If only we still had indexation allowance

Thanks (0)
avatar
By moneymanager
30th May 2022 11:45

Valuations obtained to acquire debt are not there to demonstrate the value of the property beyond protecting the lender's security, a graphic demonstartion of that is that a surveyor reprting on a "cladding impaired" flat would report a zero value (I have seen this), the flat was sold for cash for £290,000.

Thanks (0)
avatar
By johnjenkins
30th May 2022 11:52

As I see it the only time a valuation is used for tax purposes is when a property is in probate. I guess the point here is that the op could have lived in the property at a later date again, then used another later valuation. I think if HMRC allowed that then it's wide open to abuse.

Thanks (0)
Replying to johnjenkins:
paddle steamer
By DJKL
30th May 2022 16:47

And non arms length transactions or March 82 valuations.

Thanks (0)
By paddy55
30th May 2022 13:36

Hi, Australian law. I recently had a case on all fours with the OP. Recent Australian legislation allowed the valuation to be deemed the cost price.

Thanks (0)
Replying to paddy55:
avatar
By Tax Dragon
30th May 2022 16:53

I'm guessing it wasn't quite on all fours with the OP, if Australian legislation was in any way relevant.

Thanks (0)
Share this content