New CGT rules and tax rates 2016/17

CGT rate applicable in 2016/17 on a property which was both a FHL and a residential let.

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A client has owned a property for 15 years. The property was a FHL for the first 3 years of ownership followed by 2 years of residential letting (as the letting did not meet the FHL rules) and it has been his PPR for the remaining 10 years. If he sells the property I assume he can claim PPR for 10/15 of the gain and letting relief for 2/15 of the gain (lower of £40000, PPR and gain from residential letting). I can also deduct the CGT allowance for the year from the gain. As the client is a higher rate tax payer is the tax payable at 28% of the remaining balance or is it 2/5 of the gain @ 28% (residential letting) and 3/5 @ 20% (FHL)?

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Head of woman
By Rebecca Cave
12th Dec 2016 17:07

I don't follow your thinking that the gain relating to FHL use of the property should be taxed at 20%. Surely the whole property is, and always has been, a residential property, so the taxpayer is disposing of a residential property interest (RPI).- See TCGA 1992 Sch 4ZZC.
So the gain, less the relief for PPR and lettings relief, should be taxed at 28%.

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Portia profile image
By Portia Nina Levin
12th Dec 2016 17:35

The lettings relief is 5/15ths capped at £40,000. Any taxable gain will be taxed at 28% (or 18%). There is no basis to charge any of it to tax at 20% (or 10%)

If the FHL had come at the end, the gain would have qualified for ER, and have been taxed at 10%.

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Portia profile image
By Portia Nina Levin
11th Jan 2017 13:10

Good news people. The DEFINITIVE answer to this question has now been provided by that clever Tim Good and his colleague Giles Mooney, here:
https://www.accountingweb.co.uk/tax/personal-tax/any-answers-answered-fu...

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