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I am not certain whether I qualify for lettings relief, unless I can first establish the fact that the property is indeed my principal home. The quandary is whether I will be worse off by claiming it as my Principal residence, or better to let the taxman think that the marital home is still our joint primary residence.
From what I have read, I find your answer very helpful. However, it will take me a little time to look at the links and absorb the info, This is my first time on such a website so not familiar with the procedure.
A further question has just arisen in my mind. If, as you suggest, and according to the facts (apart from 2 further periods which I failed to mention earlier; namely between Easter last year till end of October & about 6 weeks this year we have lived together in the family home), If I declare the house under CPO as my main residence since Dec 2009, what would be the CGT effect of my husband's transference of 50% over to me of this property, and then in the following tax year, my transference of 50% ownership of marital home into his name? Sorry, Im struggling to get my head around each facet of the situation!
Are you in the States?
You mentioned about the rollover relief unfortunately, however, that only applies to furnished holiday rentals, I checked it out!
I've just been going thru the whole thing. Can you help me with this last issue. From May 2004 - Dec 12, we owned the buy to let property jointly. Then from them till sale, prob Dec 2013 I will have been sole owner. Is the CGT calculated at the 50% ratio for first 8 1/2 yrs and 100% from market value at Dec 12 to sale price Dec 13??
Thanks in advance, I think I'm beginning to get the full picture, now. Presumably, as it has de facto been my primary residence for some period, I can, as you said, claim the last 3 years exempt, pro rata, as well as claim the letting relief of 40K ??
I appreciate your help so far, thank you, Tony.
1 flat was never completed, therefore never rented out, the one i first moved into. The second flat rented out continuously from 2005 to present time. The third rented out from 2005, till June 2011, when I moved in.
I therefore assumed that in these circumstances I could not only claim 3 yrs exemption. (I plan to move to Flat 2 as soon as my tenant moves out next week, just to make sure I can claim residency over each flat). But also was thinking that I can claim £40,000 letting relief on the property as a whole. Would that be correct as far as you understand fro my explanation above?
If a married couple separate and transfer assets between them before the end of the tax year in which they separate, they each take the other's share of the cost and purchase date as their own on a no gain.no loss basis. If you claimed to be living together as a married couple in the two periods you referred to, then for CGT purposes, your cost of the flats would be the original purchase price if they were transferred in the tax year that you finally separated. That cost would probably be lower than the cost if you used the method I mentioned in my previous post and forgot about the "brief reconciliations".You cannot claim £40,000 letting relief on the block as a whole. Each flat is self-contained. Your letting relief may not be as high as £40,000 per flat that you lived in and let. You would need to do the calculations. £40,000 per part owner of a property per property is the maximum letting relief that can be had.
Tony, you have been really helpful, but my head is spinning now. Would it be ok if I didn't sign off till tomorrow, which will give me a bit more time just to finally figure out the position. I have not come across any information as to how to calculate the letting relief portion. From what I had come across so far, I had understood it was a flat rate of 40k, so clearly I need to explore that further. Up until your latest reply, I thought I had just about sussed my position. I will give my brain a break and then figure out your last response and come back to you tomorrow. Probably in the afto as busy all morning and lunchtime. Have a great evening and thanks again!
Thanks, XXXXX XXXXX think it's simpler than you think though because it is one large property that was bought for £77k, consisting of 3 self contained flats. So I'm not sure whether you understood that to be the case or not?
Tony, I could arbitrarily say that Flat 1 was 24K; flat 2, 29k; flat 3 24k.
We carried out £15k worth of improvements, CH etc which, I understand can be offset against the final sale price.
The house was valued at the end of last year at £110k; so again, arbitrarily I could say, 35k + 40k + 35k.
The negotiated settlement has been worked out at 110 + 25% uplift; ie 137,500. In addition to that a further 14k disturbance allowance. (Which, as far as I can make out HMRC deem as part of the "consideration of sale" and therefore subject to CGT.
As I said before, Flat 1 has never been rented out, but I crashed there in Dec 09, and have been paying Council tax all the while as it has my furniture in it to date. Flat 2 has been consistently rented since 2005. Flat 3 had also been rented since 2005 up until June 2011 when I took up occupancy till now (except for the aforementioned fairly short periods).
I cant remember if I have already mentioned it, but it was purchased on May 1st 2004, for £77k. Hope that is all clear!
Which month in 2005 was Flat 3 first let?
Flat 2; 19 - August -05
Hi again.I think the tax office will challenge any claim that one month's occupancy of Flat 1 entitles you to claim it was your main residence which would open up letting relief too. As for Flat 3, I'm assuming that the disposal proceeds will be £48,480 (£151,500 x 32%) and that contracts will be exchanged in December 2013. The cost is £32,000 (£29,000 / 2 + £35,000 / 2). The gain will, therefore, be £16,480 and the ownership period to December 2013 will have been 116 months.The gain for the period the property was your main home is exempt from CGT as is the gain for the last 36 months of ownership (excluding overlaps to avoid double counting). That accounts for £5,114 (£16,480 / 116 x 36). The remaining gain of £11,366 is split £9,519 to the letting period (less 6 months which are part of the final 36 months of ownership) and £1,847 to the vacant period.As the property was both your main home and it was let you are entitled to letting relief which is the lesser of:1 £40,000,2 the sum of the main residence gain and the gain for the last 36 months of ownership of the property which is £5,114 and3 the letting period gain of £9,519.Letting relief will reduce the remaining gain from £11,366 to £6,252. That is below the annual CGT exemption of £10,900 but you will have taxable gains on the other flats and on the sale of your share of the marital home so you will probably have some CGT to pay.
I haven't yet got to grips with what you have just set out above, but you haven't mentioned Flat 2. I think i said earlier that my plan is to move down to flat 2, from flat 3, as soon as it becomes vacant, on Monday, I believe. That way, I will surely become elligible for principal residency on that flat as well, and thus get the three year exemption. As far as I am aware, it doesn't really matter how long one has lived there, just so long as it was, in fact your main residence at some point of the ownership.
As regards, XXXXX XXXXX I was assuming that I could claim exemption for the last 3 years, as it was occupied by me from Dec 09 til Mar/Apr 10, as my only residence. Though, I accept that I would not be able to claim letting relief as I havent ever let it out.
Does this alter your final computation?
I thought all the flats were the subject of a CPO. How can only one in a block be subject to a CPO?I asked earlier for the exact periods of occupancy by you of the flats. You said you had lived in Flat 1 in "Dec 09". How long will you be living in Flat 2? Why move from Flat 3 if they are both being sold?
The property is a large terraced house on 3 floors. Each floor consists of a self contained flat.
The entire building is subject to the CPO. It was purchased, as I said, as a single entity for 77k.
I moved into Flat 1 in December 2009, when I left the marital home. I then moved to different rented accommodation near my work from Beginning April 2010 until Jun 2011. The I moved back to the property, but this time I moved into Flat 3. I live there now. As the tenant in Flat 2 will shortly be leaving, I wanted to immediately inform the council that I will take up Flat 2, so that I can legally claim that I will have resided in each of the 3 flats before completing the sale in December 2013.
I am sorry if this has been a complicated situation, and if I had not adequately described the situation. Please ask if it needs further clarification. Thanks.
Hi Tony, I'm afraid I got lost following your computations below:-
As for Flat 3, I'm assuming that the disposal proceeds will be £48,480 (£151,500 x 32%) and that contracts will be exchanged in December 2013. The cost is £32,000 (£29,000 / 2 + £35,000 / 2). The gain will, therefore, be £16,480 and the ownership period to December 2013 will have been 116 months.The gain for the period the property was your main home is exempt from CGT as is the gain for the last 36 months of ownership (excluding overlaps to avoid double counting). That accounts for £5,114 (£16,480 / 116 x 36). The remaining gain of £11,366 is split £9,519 to the letting period (less 6 months which are part of the final 36 months of ownership) and £1,847 to the vacant period.As the property was both your main home and it was let you are entitled to letting relief which is the lesser of:1 £40,000,2 the sum of the main residence gain and the gain for the last 36 months of ownership of the property which is £5,114 and3 the letting period gain of £9,519.Letting relief will reduce the remaining gain from £11,366 to £6,252.
I understood the MRR of £5114, but didnt understand how you ended up with £6252. I got the letting period of 67 months;vacant 13 months & residential of 36months, but not how you arrived at £6252. It's late and probably brain not working right. Be in touch tomorrow afternoon.
Yes, don't you sleep??
I hate going to bed with unanswered questions because I will dream about them!
The £6,252 is the net taxable gain for Flat 3.
NO!!! Go to bed, my brain has stopped working. I will come back tomorrow with fresh eyes and sign off! Goodnight, sleep tight! & Sweet dreams!
I think it didn't sink in about the lesser of.... I had thought from things I had read that you could stack up the 3 years exemption plus the letting relief.
Anyway, I shall read up your link tomorrow. Thanks again for your help. Roger, over and out!
After I checked out last night, I had one last look at your figures and finally the penny dropped! Basically, in all cases the MRR was the lowest figure so that was deducted twice to arrive at the taxable gain.
Thanks for your patience, hopefully all will go smoothly with HMRC.
Thanks, XXXXX XXXXX out!
Can I ask another CGT question?
Last tax year, I gifted a share of property to my daughters, which had reverted back to my husband and myself upon the death of my son in 2009. My share of the loss was £6680. I didn't declare it as I hadn't even understood that my gifting something was liable to tax, regardless of whether it had gained or lost value. Which just goes to show how ignorant I am! However, I have just discovered that some savings in an accumulated trust savings account that my father set up for my children while he was still alive, is actually in my name and not my daughter's name. I would like to transfer it into her name as she is old enough to take charge now.
My question therefore is simply whether last year's loss can be offset against this year's gain (of transferring the account into her name)?
Thanks for your attention,
Tony, the monies invested by my father for my kids was put into an M&G Investment savings plan, and when I spoke to them today I was told that I am the nominated account holder along with my husband. I asked about transferring it into my daughter's name and it was the guy's opinion that I would indeed be liable to CGT as it was effectively my asset! The other matter I have discovered with regard to the loss connected to the share of the property gifted last year to my daughter, is that a loss incurred by a gift to a connected person, can only be offset against a gain with regard to the same connected person! Confusing or what!
Thanks, Tony. In the event when one loss counteracts a gain, does one have to inform the taxman, or is it ok to just to ignore it then?
Thanks for your help. Much appreciated! Hope you can have a relaxing evening. I will look at the links in a bit, tax is definitely taxing for my poor brain!