I own a house with my parents in equal share. I moved out in July 2002 and my parents moved into one of my rental properties in October 2008 as which point we started to rent the property in question out. Purchase price was £127,000 in April 1996. The current mortgage on the property is £85,000.If we sold the property in the next few months for £300k what would be our tax liability.I would use the proceeds to reduce my current residential mortgage and my parents would either use their share to purchase a 40% share in my current renal property or bank the money and continue to pay rent.Thanks in advance for your help.
State/Country relating to question: United Kingdom
If you can let me have the following information about the jointly owned property that you want to sell I'll do the calculations for you:1 Did you all move into the property when you bought it in April 1996. Is it owned 1/3rd each?2 Where did you move to in July 2002? Did you buy another property?3 Are there tenants in the property now? Which month in 2008 did the tenants move in?
1. We all moved into the property in April 1996. It is owned 1/3rd each.
2. I moved into another property in June 2002 which I purchased in November 2001 with my wife. 50/50 share.
3. There are tenants in the property now. Tenents moved in on 26th November 2008.
Also, the key thing i need is the way to calculate this incase some of the info provided is not 100% accurate or the sale price achieved varies. Many thanks
Thanks.As far as each of your parents are concerned, they could hold on to the property until October 2011 as the gain for the 36 months of ownership after they left the property is always exempt from CGT. They lived in it from the day it was bought so the period up to the letting is exempt under the primary residence rules. So, provided it was sold before October 2011 they would have no CGT problem.As for your share of the potential gain, £57,667, assuming a sale in March 2010 for £300,000, £37,984 would be exempt due to the primary residence relief and last 36 months of ownership rules (£57,667/167 months x 110 months). Of the remaining gain of £19,683, £5,870 relates to the letting period. Normally, you would be entitled to letting relief which is the lesser of:1 £40,0002 the main residence and last 36 months exempt gain of £37,984 and3 the letting period gain of £5,870However, as the 17 months the property has been let is covered by the last 36 months of ownership I don't think you will be entitled to letting relief of £5,870 as that would be duplicating an exempt period. However, the wording of the law is unclear on this. If you claim it, it might be disallowed.If the remaining £19,683 is not reduced by letting relief the first £10,100 of the gain will be exempt leaving £9,583 taxable at 18% which gives rise to a CGT liability of £1,725. If letting relief of £5,870 is allowed the CGT would reduce by £1,057 to £668.
Thanks for your response - that's great. Just a couple of more things.
1. How can I get more clarity on whether I can or cannot use letting relief.
2. If and when I need to delare CGT on my self assessment would I be required to provide all back-up documentation to support my calculations?
The problem is there is no clarity. I tend not to claim it for clients I've prepared property calculations for any part of the letting period that coincides with the last 36 months of ownership. You might see fit to claim it and wait for it to be disallowed but you'll be charged interest and a surcharge on any extra tax that is paid late.When you submit your tax return to the tax office they will require a copy of your calculation but not the documentation. They may ask for that later if they decide to take a closer look.
Thanks that has been very useful. Anyway to get your contact details if I wanted you to prepare my return for me?
Unfortunately, I'm not allowed to pick up private work from this site.
Inc Tax, CGT, Corp Tax, IHT, VAT.
I have now completed the sale above with the following changes and am completing my HMRC self assessment form and need to know if the above answer is still valid and how much relief I can cliam under the"deduction for relief field".
Changes to the above:
Date of purchase: 9/4/98 (not 4/96)
Date of sale: 9/8/10.
Sales price: still £300k
I assume the form will apply the relevant percentage calcs? I just need to know what figure I can insert in deduction for reliefs and if there are other reliefs I can claim?
Hi again.Leave this with me for a while and I'll get back to you as I need to revise the calculations.
Hi again.Your parents share of the gain will be completely exempt from Capital Gains Tax as they moved out less than three years before the property was sold.Your share of the gain was £57,667 (£100,000 - £42,333). The Revenue will not allow periods of ownership to be accounted for twice so you will not be entitled to letting relief as the letting period formed part of the last 36 months of ownership which you are given as a tax free period in any event. Your exempt gain is £33,671 (£57,667 / 149 months x 87 months). The remaining gain of £23,996 will be reduced by the 2010/11 CGT exemption of £10,100 to £13,896 which will be taxable at 18% to leave you with a CGT liability of £2,501.28.I've consulted former colleagues since your original question about letting relief and the double counting of periods of ownership and they have all said that it will not work. You have to provide a calculation to the tax office and they will spot the double counting.The wording of the law does allow an interpretation that suggests double counting can be done but the Revenue will probably argue that it was not the intention of the wording to do that. However, if you wish to claim letting relief it will be £8,515 (£57,667 / 149 x 22) which will reduce the taxable gain to £15,481. The £10,100 CGT exemption will reduce that to £5,381 and the CGT will be £968.58.
Thanks Tony. Can you clarify what the 149 months and 87 months relate to?
You owned the property for 149 months and it was let for the last 22 months.
Sorry - and where is the 87 coming from?
Also, I am fillling in my tax return right now and it is allowing me to deduct cost of aquisition, cost of disposal and improvement cost which reduces my gain to £51973. Do I use this in the relief calculation or do i still need to use £57667? Thanks
You lived in the property for 51 months. That is a CGT exempt period. You get the last 36 months as an exempt period too (this includes the 22 month letting period) so your total exempt period is 87 months.You deduct the legal fees, disbursements and selling fees and work out your reliefs on the net figure.
I am almost done with my tax return. on reviewing the calculations it is showing my capital gains to be charged at 28% and not the 18% in your response above. Is the correct. was there a change on 23 June? Am I able to attribute any of the gain before 23 June 2010?
The sale occurred on 9 August 2010 which is after 22 June 2010 and you cannot apportion it I'm afraid.