Capital gains tax - can anyone help with the calculation?

[Smellysaurus]

We live abroad and are considering selling our UK house. I’m a bit confused on possible reliefs on CGT after looking on the HMRC calculator...

My old accountant in the UK is retired now and we’ve been filing our own tax returns and am usually ok at handling stuff myself, but this is confusing me.

Do I need a new accountant or can anyone else help?

Basic details are:

• bought house in June 2011 for 300k
• buying costs were approx 12k in fees/stamp duty
• no renovation costs
• house rented out from July 2016 (when we moved abroad) to now.
• current value is approx 500k
• selling costs will be approx 10k I guess
• no other uk income (everything else declared abroad)

Thanks gazillions if anyone can help.

Think it’s best you talk it through with an accountant. Could suggest one if you want?

If you lived in it between June 2011 and July 2016 you will be entitled to some private residents relief. You have to look at the total months occupied, plus the last 18 months of ownership, then take that as a proportion of the gain.

i.e. June 2011 to July 2016 = 62 months + 18 months = 80 months in total.

Total period of ownership is 9 years (let's just use round numbers!) = 108 months.

Your PRR is therefore 80/108 x the gain of £178,000 = £131,852.

(Gain = £500,000 - £10,000 - £300,000 - £12,000 = £178,000)

Therefore the gain to be reported is £178,000 - £131,852 = £46,148, split between the owners of the property as registered with Land Registry.

As to how it all works in terms of your tax returns when you're non-resident, etc, I'm not sure. You may (or may not!) be eligible for the CGT annual exempt amount - I don't know enough about residency status, etc, to say for definite.

The tax rate is 18% or 28% based on whether it's taxed within the basic or higher rate tax bands.

As non-residents, I think you have to report and pay the CGT over to HMRC within 30 days of the conveyance though, so it is worth making sure you get it right.

@CharmingB thank you so much for explaining all that!

From what I’ve read the annual exemption would apply, which seems to £12,300. So if we get that each that’s £24,600 off the amount too, right?

So i make that approx £22k between my husband and I? Then worst case is 28% of that? So £6k ish??

That seems low but I’ll take it!

You need to do a non resident CGT return and the calculation rules are different to those outlined above. Please take proper advice!

I will and have found a new tax advisor so will speak to them soon. I’m just being impatient really and wanted to get a view on whether we’re looking at £20k or £2k...

You need to obtain a professional valuation of the open market value as at 5 April 2015. The deemed final period of ownership is now 9 months not 18. Otherwise, taking approximate months, your exempt gain will be 70/108 x (£490k-£312k) = £115k. Your chargeable gain will be about £63k and after annual exemptions, assuming genuine joint beneficial ownership, the CGT you will pay is about £11,000.

The tax could be as low as £7,000 but that depends on other UK income.

No one can tell you without looking at your accounts, valuations etc.

You need to obtain a professional valuation of the open market value as at 5 April 2015.

No you don't - it's irrelevant for CGT.

@Kazzyhoward

For non-resident individuals living abroad who bought a property in 2011, they are 're-based' to the market value at 5 April 2015 when claiming a deduction for CGT purposes against their sale proceeds. This is widely known in the accountancy and tax sectors and was legislated in 2015.

On what authority is it "irrelevant for CGT" then?

PS : I do this think as a living

@CharmingB @jackdaw141
Relative wants to sell a rental property, it's worth 500k more than when she purchased 30 years ago.
Will get an accountant but wanted an idea of costs involved, if heavy tax bill, might be better to keep house and pay IHT eventually instead?
She doesn't want the responsibility of the house anymore so considering selling.
Not trying to avoid care home fees if needed, there is provision for that.

28% on the gain, ie about £140,000 but the annual exemption and the availability of the basic rate band to shelter some of the gain at 18% if she has low income might shave a bit off, but not much.

IHT is 40 % of the whole value on death which includes her original cost of course.

If she doesn’t want the hassle better to sell, reinvest in liquid investments but take good financial advice.

One thing to be careful of is selling (or gifting) if she has a short life expectancy, eg aged 90. If she sells tomorrow and pays the Cgt she still has some ‘net wealth’ in her estate. That ‘net wealth’ will be taxed at 40% IHT, ie a combined rate in the region of 56% or more if she dies shortly after selling.

@jackdaw141 Thanks so much for your reply.
She's early 70's and quite well. If she was to gift the house, does the person she gives the house to pay the tax (ie could mortgage for the CGT amount).

She has a pension and a widow pension (total £1500 wish) plus the income from the rental property (total £1600). She gives a proportion to charities.
Apologies for all questions.

From 6 Apr 2020, only the last 9 months is exempt from the calculation, not 18 months.

The CGT is charged on Widow not the recipient. There is no reason why the recipient could not pay the tax though. That used to cause a stamp duty issue but no longer.

The recipient pays the IHT if Widow dies within 7 years. It reduces gradually after 3 years.

I am alarmed that a Widow with a pension of £1,500 would be willing to give that sum of money away. Do you mean £1,500 a month. That is better, but she needs to get some formal advice from a qualified tax practitioner - either CTA, ATT or STEP. As a widow she may have about £1m of joint IHT exemptions if her husband/civil partner did not use theirs on first death. There may be little IHT and why should she deprive herself of wealth she may need to fund nursing or residential care for several years?

Thank you - I hope I'm not bothering you.
I think she has around £1500-2000 per month income form pensions (will check). £1600 from rental property. She gives a substantial part of income to charity who this could be cut back if needed for care.
The property she now lives in is worth around 400k. No IHT was used when her DH died.
We're absolutely not trying to avoid care home fees but thought perhaps the house she lives in would be enough to pay for that.

Sounds like we need advice, she really hates any kind of appointment/stress, so I'm just trying to help.
She suggested I take over the management of the rental property - happy to do, not sure if this changes anything..

Agree she needs formal advice, she's quite stubborn !!

Thanks again for all the replies/advice.

On those figures there should be no IHT as it sounds like she will gain her dead husbands exemptions. She might want to think about selling anyway and getting financial advice from an IFA on reinvestment, she will need liquidity at some point and decent care is about £50k a year. she has some years to go but nothing worse than trying to sell a property in a recession. Make sure she gets tax advice from a qualified tax adviser and financial advice from an IFA. Get firm fee quotes upfront.

Thank you so much @jackdaw141 Really appreciate your time and advice.

We didn't realise you the IHT exemption would apply on the rental property.

Pomegran -

Husband H has a general exemption worth £325,000 (NRB)
Wife W also has a general exemption worth £325,000 (NRB)
After 2007 these can be left to each other if not used. So that is £650,000 now to Widow if husband left his estate to her.

This £650,000 goes against any assets now owned by Widow.

In addition, there is this new-fangled main residence exemption (called MRNRB) worth £175,000 each which can also be left to each other. That is £350,000 in total but has to be used against their main home. This means that £50,000 of the £400,000 value is exposed to tax.

Chuck the £50,000 into the fire of IHT.

But then there is the combined £650,000 general exemptions (NRB x 2 ) which comes to your aid. Add up the value of the let property - which is considerable - then add to that the £50,000 surplus on the main home and deduct the £650,000 from the result. IHT will be paid on that difference.

However -

• HMRC will challenge the valuations and may want to push them up higher to collect more tax.

• The forms you will have to fill in on death are complicated and attract penalties if you get them wrong.

• Tax law changes every year unlike any other industry.

Even though you know that zero IHT is possible, to make that case and pay no tax legally and competently, I urge you to seek the services of a qualified tax specialist ie - STEP, CTA or ATT qualified.

Not just an 'accountant' nor an IFA.

Oh, bill to follow.

@jackdaw141 I really appreciate your help.

Thank you so much. I will pass all this information on.

I think I do probably owe you payment !

Thanks again.

Cash will do.