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Answered in 10 minutes by:
8/12/2009
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 16,712
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
VerifiedIf you can let me have the following information I'll try to answer your question:
1 How did you come to acquire the flat at £285,000 below its market value? Was it bought from a relative?
2 What exactly was the £50,000 expended on? How much of this was external and how much was to the interior of the flat?
3 What do you expect to spend £3,000 on this year?
1 How did you come to acquire the flat at £285,000 below its market value? Was it bought from a relative?
2 What exactly was the £50,000 expended on? How much of this was external and how much was to the interior of the flat?
3 What do you expect to spend £3,000 on this year?
For Capital Gains Tax purposes you will be deemed to have acquired the flat at its market value at the time you bought it from your father. The difference between what you paid for it and what it was worth when you bought it was effectively a gift to you by your father and may be subject to Inheritance Tax should he not survive seven years from the date of the gift. In addition, unless it was his principle residence he should have reported the transaction to the tax office as there may have been capital gains tax consequences for him.
For CGT purposes, any gain is treated as accruing evenly over the entire period of ownership. The gain for the period you have lived in it plus up to the last 36 months of ownership after you move out (if you do) will be exempt from CGT. The gain for any period of letting or vacancy will possibly be taxable unless it is three years or less.
So, if you moved out today and let the flat for five years, the gain for two years as a proportion of the gain for the whole period of ownership would be liable to CGT subject to a deduction called letting relief. This is available where the property has been your primary residence and has been let and is the lesser of £40,000, the exempt gain (period of residence and up to 36 months) and the remaining gain. So, in short, you have three years from the date you leave the flat to sell it without incurring a CGT problem.
It is difficult to offset the cost of repairs carried out prior to the initial letting of a property against rental income but I've known people who have done it though their claims probably got through more by luck than judgement. Annual service charges would be deductible as would repairs, ground rent and mortgage interest. Take a look here for information on the tax consequences of letting a property.
I'd recommend that you speak to an accountant about the potential CGT and letting scenarios before you do anything as they will be able to look at your situation in greater depth than I can do from here.
For CGT purposes, any gain is treated as accruing evenly over the entire period of ownership. The gain for the period you have lived in it plus up to the last 36 months of ownership after you move out (if you do) will be exempt from CGT. The gain for any period of letting or vacancy will possibly be taxable unless it is three years or less.
So, if you moved out today and let the flat for five years, the gain for two years as a proportion of the gain for the whole period of ownership would be liable to CGT subject to a deduction called letting relief. This is available where the property has been your primary residence and has been let and is the lesser of £40,000, the exempt gain (period of residence and up to 36 months) and the remaining gain. So, in short, you have three years from the date you leave the flat to sell it without incurring a CGT problem.
It is difficult to offset the cost of repairs carried out prior to the initial letting of a property against rental income but I've known people who have done it though their claims probably got through more by luck than judgement. Annual service charges would be deductible as would repairs, ground rent and mortgage interest. Take a look here for information on the tax consequences of letting a property.
I'd recommend that you speak to an accountant about the potential CGT and letting scenarios before you do anything as they will be able to look at your situation in greater depth than I can do from here.
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 16,712
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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