...to ask for help with capital gains tax(31 Posts)
I am asking for help with my mums tax return. She's in her 70s and never done one before. I have basic experience of doing mine and my husbands (landlords). My basic knowledge comes from reading HMRC help guides and phoning them for advice.
My mum wasn't able to sell her house even though it was on the market for 3 years. She needed living accommodation on one level, that was her reason for trying to sell. She had lived there 20 years and it was mortgage free.
She therefore rented out her house and rented a suitable property herself. This was 3 years ago. As I am a landlord I was then able to do her relatively easy tax returns for her. A year ago when her tenant left she decided to try and sell again, and sold it almost immediately (without her ever returning to live there). It sold for around £117,000.
So now it comes to me doing her tax return again for her and I haven't a clue about capital gains tax? Will she need to pay it and if so what do we need to do with regards to her tax return?
She is on a state pension, no other income. The money from the sale is invested, in savings and being spent on her living expenses. She's not great with money!
Hope I've included everything relevant but please let me know if not.
Any help would be so great, feel really out of my depth with this one, and don't want to do it wrong.
Would she even pay capital gains? It's her only owned residence, it's not like she bought a second property..
What was it on the market for when she moved out?
The difference between the value wen it ceased being her home and what it sold for, less costs, less the annual allowance is her gain
that is then taxable at the appropriate rate
There is something called principle private residence relief. I'm not an expert but my understanding is that This effectively works so you don't pay tax on your main residence. Your get an exemption for the time you lived there plus the last 18 months. Which would leave an 18 months period where she was letting it to be subject to cgt. However there is something called letting relief which should account for any gain arising in this period. If you Google pricing letter private residence relief and lettings relief you should find some more detailed info
Apologies for typos I'm on my phone and it doesn't like my fat fingers!
I doubt she is liable for cgt as it was her principle primary residence until recently. By the time she has offset 3 years' allowances is there much gain, compared to the original valuation?
The annual allowances are not cumulative.
PPR time limits were tightened up recently as accountants were running rings round the 3 year rule.
The important number is : what was it worth on the day she moved out?
And then look here
You might need to calculate the gain and then apportion the total period of ownership to reflect when she was resident and when she was non resident. The period of residence will be covered by the relief, and the rest will be liable to CGT.
Remember that if she made any improvements during her ownership she can get relief for those too as long as they are reflected in the state of the asset at the time of sale.
on a selling value of £117k less fees of at least £2k
lived in 17/20 years
but 17/18 years excluding the last 18 months
will give a gain that is very likely to be less than £11500
so unlikely to have cgt
Your mother will get PPR relief on the number of years she spent in the house as her main residence. She must have been residing there.
- she would have got 3 years for any reason of absence as long as she came back to the property but as she didn't, ignore this
- she will get letting relief for the number of years in which the property was let out. To be eligible for this, the property would have been her main residence at some point which it was. Secondly, there was no deemed occupation. Your mother meets both these criteria. Deemed occupation would be as explained above.
- the letting relief will be the lower of the gain during the letting period, the PPR relief and £40,000
- the last 18 months is always exempt as it was her main residence at some point.
So you will count the number of years she actually lived there over the number of years she owned the house to calculate the PPR relief + the last 18 months.
For your CGT calculation take
Less capital enhancement expenditures
Less PPR relief
Less annual exemption of £11,100
The gain will most likely reduce to nil
Thanks so much for all the info. Very helpful and also putting my mind t rest she won't have a big tax bill, if anything.
To clarify, it was on the market before she let it out, not while rented out. Then it was taken off the market when she got a tenant. When that tenant moved out she put it up for rent and for sale to see what happened, and managed to sell it immediately.
In between the two times it was offered for sale the market improved slightly in her area. I would estimate the difference to be £11-14,000.
When you mean any changes she made that added to the value, do you mean when she was living there for the 20 years? For example she had a conservatory added about 10 years ago which cost £15,000.
Whether the property was on the market or not will not affect the PPR relief.
I assume she was living in the property until the tenant moved in?
Yes that should be fine to deduct from your gain as long as the conservatory was still there when the house was sold.
From your proceeds! Sorry rushing on the train! Good luck!
The "gain" is calculated on the difference between the purchase price and the sale price. The value of the property when she moved out is irrelevant.
Yes that's right. She moved into her rental property about a week before the tenants moved into her house.
She has spent a lot on the house during her time living there:- double glazing and door, new driveway, new bathroom, new kitchen, wall knocked down to make 3rd bedroom larger. And all the work done to a high standard. To be honest we have always told her she spent far too much on it, based on the type of house. It seems that may now be an advantage now though! Would all these things also count?
And how do I found out what the correct market value was when she rented it out? (To be honest we thought the initial asking price she asked for in 2011 was too high and the reason she didn't sell then.)
The house was bought in 1990 for £55,000. It was paid for in cash by my dad when he and my mum separated.
I will get back to you in an hour as just rushing to get home sorry
Whenever you have time gapinorder.
Thank you all so much for your help. Tax returns just fill me with dread!!
£117,000 less £55,000 = £62,000
lived in as main house for 17/20 years
3/20 of gain = £9,300
= less than CGT allowance
without going into any further detail
Enhancement expenditure is anything capital (in a property this is likely to mean some sort of alteration or extension to the structure) that is still there when you sell it, so a conservatory is a good example.
Strictly speaking you do need to be able to support any claims so you'd need copies of invoices etc. The reality is the percentage of claims picked up for review is pretty small but in the event of an enquiry you would be asked for evidence of amounts deducted.
The door isn't a capital expenditure.
The double glazing - as it happened 20 years ago then can be seen as capital expenditure but if say a few years ago then no it's not a capital expenditure as it's normal to have double glazing these days.
On the assumption that you have the necessary evidences for the rest of the expenditures and they were still there at the time of the sale then you can deduct these cost from the proceeds of £117,000.
You don't need the market value of when the property was rented.
All you need is the price that was paid for it plus the stamp duty.
You can deduct these from the sale price and also the agent fees and or legal fees that was incurred when you sold it.
Hope that make sense!
A simple calculation for you
Sale price 117,000
That will give you a gain of 47000
Less PPR relief 17.5/20 years 41125
Less annual exemption 11,100
That will leave you will a gain of nil so no CGT to pay.
So you don't really need to go further than this unless your mother have more capital gains from other assets sale or she anticipate future gains then she can have a bigger loss to carry forward to reduce future gains.
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