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Hello sam,Can you please advise on the following?1. My wife and I bought a second home in Staithes (North Yorkshire), in December 1999 for about £55k. It was not let out at the time. (It is now worth about £180K.)2. In early 2007 we hoped to move to our current house (in Ravenscar, North Yorkshire), but there was a late possibility that the mortgage would not be approved. As our previous home had been very difficult to sell, we decided to move to our second home as our primary residence in any case, even though we had no certainty we could purchase our intended residence. We lived in Staithes for about 6 to 7 weeks, having sold our previous house in Mid February 2007, and fortunately the potentially insoluable mortgage problem was solved allowing us to move to Ravenscar at the end of March 2007. However, we could well have been unable to purchase our current house.3. We needed to sell the second home in Staithes to finance the purchase of our current home, but could not sell it. Therefore in July 2007 we took out a buy-to-let mortgage on it and it was let to a long-term tenant, who still occupies it. ( We submit rental income returns for this property.)4. Before CGT laws changed in this parliament, we were advised, in early 2007, that any occupancy of the second home as a primary residence would give a three year relief in the CGT calculation, irrespective of the length of the occupancy. I obviously don't know the current position on this, or whether or not it is now relevant.5. My wife does not earn, and my pensions gross about £62K pa.6. We now live on the Yorkshire Coast, but to sell our house in Matlock we part exchanged it for one near Nottingham. We had hoped to immediately sell the latter, but the market suddenly collapsed in early 2007, and we had to let it. This house was sold earlier this year with a capital loss of about £30K, which can be used to offset any CTG. Can you please advise me of our likely CGT position and rates we would be likely to pay given the above facts, if we decided to sell the cottage we own in Staithes? Does our occupancy as a main residence and subsequent long tenancy of our second home now have any bearing on the CGT position?Also are you able to suggest any ways we can minimise our CTG if we sell the Staithes cottage?Thanks for any help you can provide.Yours, Eric xxxxPS: I am reasonably OK with a general understanding of tax matters having been an accountant in higher education administration prior to retirement but have never specialised in tax as such.
Detail Required: HIGH
Thanks for your question and asking for me.
Yes there will be a capital gain that arises on the property in Staithes but the time you lived there will qualify for private residence relief (although only for 6-7 weeks as will the last 36 months of ownership, and you also will attract private lettings relief for the period
So you have owned the property for 685 weeks of which 7 weeks for the time you lived there plus the last 156 weeks of ownership will form an exemption under the basic private residence relief rules. So a total of 163 weeks
So at this stage with an initial gain of £ 125,000 (£180,000 less £55,000) from which you can deduct the costs to buy and sell (such as legal fees, and estate agent fees) and also the cost to undertake any capital improvements (such as new kitchen, new roof etc)
But using the gain of £125,000 first the main private residence relief is applied - so £125,000 x 163/685 = £29,745
So this is deducted from the gain - which leaves a new gain of £95,255
Then private lettings relief is considered (which falls under the private residence relief legislation but is a separate relief - which allows the lesser of
1) The amount of gain on which private residence relief (PPR) is due - so £29,745
2) The amount of gain left over, after PPR has been applied - which is £95,255 OR
As the lesser amount is 1) The amount of gain on which private residence relief is due - this is the relief due - so £29,745 and each of you are permitted this relief so £59,490
This is deducted from the remaining gain of £95,255 - which leaves a final gain of £35,765
As the property is jointly owned, each of your gains is £17,883 - of which the first £10,600 is deducted, as this is each of your annual exemptions - this leaves a final gain of £7285 each
And when you use the loss made, you have no tax to pay, as the gain is covered entirely by the loss.
And you will have some loss to carry forward (as only £14,565 of the loss is needed)
So you can see - there is no tax liability to concern yourselves over and you can sell without this denting your pocket.
Please do feel free to ask any follow up questions, but if you could rate the level of service I have provided, it would be appreciated, and any feedback or bonus are always most welcome.
I've now managed to open the answer.That is a great response.
Concerning the 156 weeks relief, is that always applicable to a second residence? I don't really understand the logic!
Just Answer does take a bit of getting used to !
Its not always applicable, for example
1) Some individuals sell before 36 months (156 weeks have lapsed, in which case there is no capital gains to consider at all OR
2) They return back to the property, and remain resident to the date of sale, so the main private residence relief then applies (and they cannot have both reliefs, for the last 36 months AND relief due on the basis that it was their main residence)
3) It was never their main residence
But in the majority of cases, when a property has been vacated, and has, at some point been the main residence then these last 36 months (156 weeks) exemption applies.
I'll be giving you a high rating and bonus but just one more question.
When we sell, the tenant will move out as soon as he knows he may be without his home. For the private letting relief to apply, does a tenant have to be in residence within a certain period of he house being sold? For instance, if a tenant left and we couldn't sell the house for 18 months or so would this relief still be available?
Sometimes, yes this matters, but in your case, as those last 36 months are covered by private residence relief, this has no bearing on the entitlement for private lettings relief UNLESS it takes more than 36 months to sell the property once the tenant has vacated, because then its does encroach into the private lettings relief awarded.
But I imagine after a few months you would think about short term lets if there was no major interest in the property.
Remember if you want those capital gain figures firmed up when you have sold or about to sell, do come back to JustAnswer (and for any other tax issues) and you can always ask for me in your opening post "Sam Tax"
Thanks and good luck