Capital gains tax on a propery

I'm trying to work out what my capital gains tax liability would be on a propery I own were I to give it away.

I bought the propery in August 1994 and lived in it as my only home until October 1998. At that point I let it out and moved into rented accomodation until February 1999 where I bought another propery to live in.

How do I calculate what my gains are?

Do I,

  1. Determine its value as of February 1999 and then apply taper relief?

  1. Apply indexation relief until April 1998 and then taper relief from then? (This is a bit mean if so, the propery gained in value far more than 12% over that period but c'est la vie)

  2. As for 1 but take the value as of October 1998 (Not going to make a whole lot of difference)

  1. Some other calculation. (One I've tried is to assume that the house gained at 10% per annum and then only calculate the gains from October

1998 - this come out pretty close to 1 above based on a guess of what I think it was worth when I moved out)

Tim.

Reply to
Tim Woodall
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This one

I'm assuming you rented the place out when you moved elsewhere ...

You take the gain for the whole of the period. Apply indexation relief as appropriate, apportion the gain between the period it was your main residence, which is about 7 years as you get three years added on, and the period it was your rental property, about 5 years, then claim residential lettings relief, and taper relief, and finally take off your annual exemption.

You will probably find that the tax bill isn't that high.

Reply to
Jonathan Bryce

Yes. I don't remember the exact dates but the house was empty for less than 30 days in total between me moving out and the tenant moving in.

Thankyou very much. I'm going to have to talk to an accountant before I do anything but at least I now know it's worth paying for the advice because I'm not just going to say "oh well, just stick with the status quo then for now".

Tim.

p.s. Is this something any accountant would know about or will I have to pick and choose? (I live in Watford if anyone's got any advice or recommendations)

Reply to
Tim Woodall

No, its value at that time is irrelevant. You need to know the value at the time you acquired it (which, assuming you bought it on the open market is the price you paid for it plus the expenses involved), and the value at the time you will dispose of it (which if you are giving it away will need to be determined by an independent valuation).

Yes, this is part of what you do. There's also private residence relief and lettings relief available; these are applied after indexation but before taper, and your annual exempt amount for the year of disposal is deducted after taper. HMRC have leaflets which explain all this.

The purpose of indexation allowance is not to compensate for value gained in the period up to April 1998 but to compensate for the loss in value of the money used to buy it, i.e. in effect it rebases the acquisition cost into "1998 money".

No.

For the purpose of calculating the gain, no assumption or estimate of value is made for the times of change of use from "main home" to "other". Instead, the gain for the whole period of ownership is established, and then the private use element is apportioned linearly with time.

If you were to give it away now, after 12 years of ownership having lived in it for the first 4.2 years, then the first 4.2 and the last

3 years qualify for "private home" treatment. Suppose the gain after indexation is £60k (to make the calculation easy given 12 years of ownership). Then the £60k of gain are allocated linearly to the 12 years, so each year is "worth" £5k. You get relief for 7.2 x £5k for the private use, that's £36k. If the property was being let during the 4.8 years between when you left and 3 years before you give it away, then they qualify for lettings relief, which is also worth £5k per year (hence £24k), provided this figure does not exceed the lower of £40k and the actual amount of private residence relief (which it doesn't). So in this example there would be no taxable gain even before tackling taper and the annual exemption.
Reply to
Ronald Raygun

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