Can you cut your CGT bill?

Jon Hook, an ex­pert in tax mat­ters, has some more money-sav­ing tips for prop­erty own­ers

EDP Norfolk - - LAST WORD IN PROPERTY - Jon Hook, man­ag­ing di­rec­tor Nor­wich Ac­coun­tancy Ser­vices Jon Hook can be con­tacted at Nor­wich Ac­coun­tancy Ser­vices on 01603 630882 email [email protected]­wichac­coun­tan­cy­ser­ nor­wichac­coun­tan­cy­ser­

Where a prop­erty has been oc­cu­pied as the tax­payer’s only or main home, pri­vate res­i­dence re­lief is avail­able on any gains aris­ing on dis­posal of the prop­erty (through sale or oth­er­wise.)

Pri­vate res­i­dence re­lief is re­stricted where a prop­erty has not been the only or main res­i­dence through­out the pe­riod of own­er­ship. If, how­ever, the prop­erty has been the only or main res­i­dence at some point, the gain at­trib­ut­able to the last 18 months of own­er­ship is (on a time ap­por­tioned ba­sis) ex­empt, even if the prop­erty was not oc­cu­pied as the main res­i­dence dur­ing that pe­riod.

Where a prop­erty is let, pri­vate res­i­dence re­lief is not avail­able for the let pe­riod, as the prop­erty is not oc­cu­pied as the tax­payer’s only or main res­i­dence. De­spite this, let­tings re­lief is avail­able which is an­other lit­tle known re­lief that in some cases can dras­ti­cally re­duce the tax­payer’s cap­i­tal gains tax bill.

To en­joy let­tings re­lief you must have oc­cu­pied the let prop­erty as your only or main res­i­dence at some point as you would in the case of pri­vate res­i­dence re­lief. Let­tings re­lief is cal­cu­lated as the low­est of the fol­low­ing:

1. The amount of pri­vate res­i­dence re­lief;

2. £40,000;

3. The amount of the charge­able gain aris­ing as a re­sult of the let­ting.

Tak­ing an ex­am­ple of Jack who pur­chased his prop­erty on March 1, 2008 for £100,000 and lived in it for one year un­til he let it out. Jack owned the prop­erty for ex­actly 10 years un­til he sold it on Fe­bru­ary 28, 2018 for £165,000 with a £65,000 charge­able gain (as­sump­tion: no im­prove­ments). The first 12 months are ex­empt plus, as he ac­tu­ally oc­cu­pied the prop­erty at some point, he ben­e­fits from a deemed pri­vate res­i­dence re­lief ex­emp­tion for the last 18 months. There­fore 30 months of 120 are ex­empt mean­ing 30/120 x £65,000 = £16,250 of the £65,000 gain is ex­empt from cap­i­tal gains tax. The gain at­trib­ut­able to the re­main­der of the gain, £48,750, is not el­i­gi­ble for pri­vate res­i­dence re­lief.

The ad­di­tional, ‘let­tings re­lief’ will be the lesser of:

1. £16,250 – the gain qual­i­fy­ing for pri­vate res­i­dence re­lief:

2. £40,000;

3. £48,750 – the gain at­trib­ut­able to let­ting

There­fore, the let­tings re­lief of £16,250 is avail­able. If Jack is a ba­sic rate tax­payer and all of the tax­able gain falls within the ba­sic rate band (con­sid­er­ing all his other tax­able in­come), the CGT he must pay is as fol­lows: Gain on sale £65,000

Less: pri­vate res­i­dence re­lief (£16,250)

Less: let­tings re­lief (£16,250) Charge­able gain £32,500 Less: an­nual ex­empt amount (£11,300)

Tax­able gain £21,200 Cap­i­tal gain tax ow­ing @ 18% £3,816

Many tax­pay­ers, un­aware of let­tings re­lief, would lose £2,925 in tax in this ex­am­ple if they tried to at­tempt the cal­cu­la­tion them­selves.

ABOVE:Make the most of your al­lowances

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