Sold second property in 2008 after 12 years of ownership. This…

I'll deal with the first property that you sold for £410,000 as the disposal should have been reported and as you will have to report the second property sale the tax office may ask questions.

When you calculate the gain on the sale of a property it is treated as accruing evenly over the entire period of ownership which makes the calculation of the tax free part and the taxable part easy.

You owned the first property for 97 months and made a gain of £220,000. The gain for the 30 months you lived in it is exempt. That accounts for £68,041. The gain for the last 36 months of ownership (less the 6 months you lived in it at the end which is included in the occupation period above) is also exempt. That accounts for another £68,041.

The remaining £83,918 (£220,000 - £68,041 - £68,041) is the letting period gain less the part that falls into the last 36 months of ownership. As the property was both your main residence and let you are entitled to letting relief which is the lesser of:

1 £40,000

2 the exempt gains of £136,082 and

3 the letting period gain of £83,918

So, the letting relief is £40,000 or £80,000 depending if the property was jointly owned or not. If it was jointly owned the remaining £3,918 (£83,918 - £80,000) will be covered by your annual CGT exemption for 1999/2000 of £7,100 each and so no CGT will have been payable assuming you didn't use the exemptions against other gains.

If the property was in one person's name only then only one amount of letting relief will be due and the gain will be £43,918 after deducting it. The annual CGT exemption for 1999/2000 was £7,100 so that leaves £36,818 taxable at 20%, 40% or a combination of the two depending on the income of the person in whose name the property was for that tax year.

As for the property you sold in April 2008, you owned this for 144 months and made a profit on its sale of £128,000. As it was your main residence for 40 months from May 1996 to August 1999 you can also claim the last 36 months of ownership as exempt. This amounts to £67,556 (£128,000/144 x 76). This leaves £60,444. If the property was jointly owned, you can deduct two annual exemptions for 2008/09 totaling £19,200 which leaves £41,244 taxable at 18%. So, the CGT payable on 31 January 2010 will be £7,423.92. If the property was not jointly owned, then the CGT will be £9,151.92.

I should add some caveats. You say the second property was sold in April 2008. The tax point for a property sale is the contract exchange date not the completion date. If contracts were exchanged before 6 April 2008, the CGT liability could be significantly different as the method of calculation of taxable gains was very different in 2007/08.

The Revenue may challenge the claim that the UK property was your main residence especially if you owned one abroad. This is unlikely though possible.

If you do run into problems with the tax office when you submit your tax returns, you should consider taking professional advice rather than taking on the Revenue yourselves.