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Joshua
Joshua, Lawyer
Category: UK Property Law
Satisfied Customers: 24527
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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I bought my 4 bed house in November 2006. I plan to sell it

Resolved Question:

I bought my 4 bed house in November 2006. I plan to sell it in November 2013. For the whole period I have let out 3 of the rooms to friends (at a discounted rent). I have occupied the 4th room for the whole period. The capital gain on the property will be c£500k, what capital gain relief is available?
Submitted: 1 year ago.
Category: UK Property Law
Expert:  Joshua replied 1 year ago.

Josh-2010 :

Thanks for your question. Please kindly RATE my answer when you are satisfied

Josh-2010 :

Have you paid iincome tax on the rent received please via self assessment returns?

Customer: Yes, I ve submitted a self assessment tax return every year.
Joshua :

Thanks

Joshua :

There are a number of steps you need to take to calculate your gain as follows. Could you confirm if you are married?

Customer: I m not married
Joshua :

Thanks. You will need to consider the following steps to calculate your gain. The first step is to work out the area of the house that has been rented out. e.g. If you have rented out 50m2 of a 150m2 house then you have rented out 1/3 of the property.

Joshua :

You then calculate the number of years of gain - here you have 7 years of gain based on what you say.

Joshua :

You can ignore the last 3 years of the gain so you are dealing with 4 years of the 7 years of gain.

Joshua :

Finally you can apply any other reliefs that are available as follows:

Joshua :

Here because you have occupied the property you can apply lettings relief. The maximum amount of Letting Relief due is the lower of:



  • £40,000

  • the amount of Private Residence Relief due

  • the amount of gain you've made on the let part of the property

Joshua :

You can also deduct any monies spent on things like improvements from the gain.

Joshua :

Would you like me to assist with a rough calculation? To perform a final calculation you will need to know what the property actually sells for but you can calculate an approximate calculation using your estimates now if you wish. I would need to know the approximate area of the house you have rented out in percentage terms to do so?

Customer: You can assume house was purchased for 800k and sold for 1.3m. I have declared to Hmrc that I occupy 25% of the house the remaing 75% is occupied by the 3 tenants. Thanks
Joshua :

Thanks - one query are there no shared communal rooms? e.g. bathroom kitchen etc? The reason I ask is that 3 out of 4 bedrooms in a normal house would not equal a 25/75 split because there is a sitting room kitchen etc?

Customer: Yes, there is a kitchen, sitting room and 2 bathrooms. I ve always assumed that we use the communal rooms equally. Bedrooms are individual private space.
Joshua :

Thanks. What proportion of the house overall do 3 out of the 4 rooms comprise would you estimate?

Customer: I would say the house is 1800sqft in total and the 3 let bedrooms total 500sqft
Joshua :

OK so for the purposes of this calculation I shall use a figure of 28% having been let out. Obviously you can refine this if you wish.

Customer: Ok understood
Joshua :

Thanks. If you could bear with me while I produce a calculation...

Joshua :

Calculation as follows. Assumes you have made no other losses you can offset gain by and that you are not a basic rate tax payer.

Joshua :

Gain is 500000

Discount 3 years of 7 years of gain, gain is 285714

Gain after applying annual exempt amount of 10900 is 296614

Remaining annual exempt amount is 0

Gain after applying losses brought forward of 0 is 296614

28% of gain after applying PPR relief on the balance is 83052

Gain after application of private lettings relief of 40000 is 43052

Basic Rate Band Remaining is 32010. 457090 Taxable at 28% = 12055

Joshua :

Is there anything above I can clarify for you?

Joshua :

You can also take off cost of purchase and sale from the gain but you will not know the latter yet and this will only make a marginal difference.

Customer: Thanks. I ll get my head around it and come back with any further questions
Joshua :

A pleasure.

Joshua :

If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with though please reply back to me though.

Customer: Hi - my reading on hmrc so far is that the three year rule only applies if you have moved out of the property. Do you have a link to HMRC website where this is explained?The 28% proportion is also interesting, again could you point to HMRC website for clarification. Thanks
Joshua :

The last three years is always disregarded. Bear with me and I will see if I can find references for you...

Joshua :

Here is the reference for the percentage that you allocate to the lodgers:
http://www.hmrc.gov.uk/manuals/cgmanual/CG64702.htm

Joshua :

Here is the authority for the final three years being exempt:
http://www.hmrc.gov.uk/manuals/cgmanual/CG64985.htm

Joshua :

You will appreciate the above is taken from HMRCs tax manual so is rather dry. I hope it is of use.

Joshua :

Does the above answer all your questions or is there anything I can clarify or help with any further?

Customer:

Thanks but what you are saying slightly contradicts what i m reading here

Customer:

http://www.hmrc.gov.uk/agents/toolkits/cgt-land-buildings.pdf page 19, example at bottom of page.

Customer:

The difference seems to be in the interpretation of 'lodger' or 'residential letting accommodation'

Customer:

Can you clarify any further?

Joshua :

Sorry I am not clear on which part you feel is contradictory - could you kindly explain a little more what you mean?

Joshua :

If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with though please reply back to me though.

Joshua, Lawyer
Category: UK Property Law
Satisfied Customers: 24527
Experience: LL.B (Hons), Higher Prof. Dip. Law & Practice
Joshua and 5 other UK Property Law Specialists are ready to help you

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