My wife and i are selling our flat. We both have decent fulltime…

Hi again.

If the property is sold in May 2012, it will have been owned for 209 months of which your wife lived in it for 12 as a part-owner, her parents "rented"it for 132 and they lived it in it as part-owners for 65.

This is a messy situation since the dates which are of relevance are guesses to some extent. Since you are on the deeds as well as your wife, you are deemed to have acquired your share of the property at the same times and at the same cost as her. So, you each acquired a one-eighth share for £1,625 in, say January 1995, another one-eighth share for £10,625 in, say December 2000 and a quarter share for £35,000 about five years ago. If you deduct the sum of the three previous figures, £47,250, £2,500 legal fees and £25,000 of improvements from your respective shares of the sale proceeds, £89,250, you are each left with a gain of £14,500.

The gain for the period your wife lived in the property as a part-owner will be exempt as will the gain for the last 36 months of ownership. That accounts for £3,330 (£14,500 / 209 x 48). The remaining gain is £11,170. As she lived in the property as a part-owner for a year before she moved out she should be entitled to letting relief. This will be the lesser of:

1 £40,000,

2 the gain for the period she lived the property plus the gain for the last 36 months of ownership, £3,330 and

3 the gain for that part of the letting period not covered by the last 36 months of ownership, £11,170. I have excluded the period when your wife's parents were part-owners.

So, letting relief of £3,330 will reduce the remaining gain from £11,170 to £7,840 which will be covered by the annual CGT exemption of £10,600 so your wife should have no tax to pay.

You will not be entitled to the main residence exemption or letting relief as you did not live in the property so your share of the gain is fully taxable. The CGT exemption of £10,600 will reduce it to £3,900. CGT at 18% will be £702.

If the Revenue do not consider that the property was let to your wife's parents, they may try to disallow the claim for letting relief which would mean that your wife's post CGT exemption gain would be £570 on which she would pay CGT at 18% of £103. They shouldn't since there is nothing in the law that says the property has to be let at a commercial rent.

Since you have no receipts or invoices to prove the improvement expenditure, the Revenue may attempt to disallow some or all of this. If they do, you should consider appointing an accountant to represent you. If it was all disallowed, your wife's post CGT exemption gain would increase to £10,756 allowing for higher main residence relief of £9,072 and letting relief of £9,072 and she may pay CGT at 28% on some of that. If the Revenue disallowed the claim for letting relief as well, her post CGT exemption gain would increase to £19,828.

Your taxable gain would increase to £28,900 and you would pay CGT at 28% on about £16,425 of that with the balance being taxed at 18%.

Take a look at HS283 for more information.

Let me know if you have any further queries.