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.
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