Capital gain tax on property bought jointly but later changed into sole ownership.

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Capital gain tax on property bought jointly but later changed into sole ownership.

    Hi Everybody,

    Please could anybody help me the correct calculation on an investment property bought as joint tenants with a partner (we have never been married) in 1999 for £80,000.
    We split up and I took out a mortgage for £112,500 and became the sole owner of the property. I have the paperwork for this mortgage but no record of whether this is the amount I paid to my ex-partner.

    I am planning to sell the property and it has been valued at £340,000.

    Would my calculation for Capital Gains Tax be

    £340,000 - £80,000 + Sale/purchase costs?

    or

    £340,000 - £112,500 + sale/purchase costs?

    or

    £340,000 - £40,000 (half of the original £80,000) + £112,500 + sale/purchase costs?

    Accountants have told me one of the two first calculations but someone on a NRLA Capital Gain Tax course said that it would be the third calculation.
    I have used my Capital gains yearly allowance on the sale of another property.

    It is important as the amount I have to pay will decide whether or not I can buy the property I have put an offer in on.

    Thank you in advance for any light you can shine on this situation.

    Jeni


    #2
    The problem is that (assuming none of the owners lived in the property) when you became the sole owner of the property there was a CGT "event" and your partner should have paid some CGT at that point as they would have had a gain.

    If your purchase was more than six years ago, HMRC won't be able to act to collect anything from your partner and possibly you for that transaction.

    It's definitely not calculation 3, which overstates the gain by 40k.

    I think you might be able to get away with a variant of 2 & 3, although I don't think you can rely on the mortgage value as the value of the property - mortgages aren't usually available at 100% and you were buying 50% of the property not all of it.
    You probably need a proper valuation (not being able to remember a significant transaction isn't going to amuse HMRC!).

    Assuming £x is that valuation, I think you're going to end up with a gain of £340,000 - (£x + sale/purchase expenses) PLUS half of the gain of £x - £80,000.

    I think that HMRC are going to want calculation 1.

    Ideally you want to exclude any mention of the first period of ownership, but I don't think you'll get an accountant or HMRC to agree.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Hello JPKeates,

      Thank you so much for trying to help me out with my question. I was hoping that you might see it.

      You say that HMRC are unlikely to be able to claim anything back from my ex-partner from when we purchased the property together but possibly from me? I know that we had a lot of discussions about this at the time as our solicitors seemed rather confused about what had to be paid. I will do some more searching through my paperwork as this may already have been paid.

      You say calculation 3 overstates the gain by £40,000. Perhaps it is a difference in language but to me this reduces the gain by £40,00 giving the calculation of £340,000 - £152,000+sale/purchase costs.
      But if you say that calculation can't be used so I suppose it doesn't really matter

      As you rightly say, mortgage companies don't usually give 100% mortgages on buy-to-let properties so am I correct in thinking that ideally I need to find the value of the property in 2003 when I took over sole ownership?

      Sorry if I sound totally really stupid but I am finding it hard to work out what to declare to HMRC especially as it is now not declared with the tax year accounts and has to be 'guessed' in a way especially when the sale takes place early in the year and you are unsure of what your income for that year will be.

      Thank you again.

      Comment


        #4
        You "became" sole owner. How? Recorded in land registry deeds?
        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

        Comment


          #5
          Originally posted by Jeniken View Post
          You say that HMRC are unlikely to be able to claim anything back from my ex-partner from when we purchased the property together but possibly from me?
          I am not 100% sure of either of those points, to be honest.
          I think your partner would escape purely because of the time elapsed.
          But you might be caught because you're relying on the time elapsed transaction, and I think that that might allow HMRC to bring it into play.
          I've never dealt with this situation personally, and I simply don't know the likely outcome.

          As you rightly say, mortgage companies don't usually give 100% mortgages on buy-to-let properties so am I correct in thinking that ideally I need to find the value of the property in 2003 when I took over sole ownership?
          I think it's pretty essential rather than ideal.

          Sorry if I sound totally really stupid but I am finding it hard to work out what to declare to HMRC especially as it is now not declared with the tax year accounts and has to be 'guessed' in a way especially when the sale takes place early in the year and you are unsure of what your income for that year will be
          You don't sound stupid at all.
          Believe me, this is complicated and when it's large sums of money you'll have to pay (with possible penalties if you get it wrong) it's stressful as well.
          There's a huge difference between offering advice on a forum when you have no personal involvement and doing my own tax calculations (for which I use a good accountant!)

          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            Since there is record of buying half share in 1999 and later buying out the other half share from ex-partner , the third calculation should be used.

            If you have record of taking mortgage loan for £112,500 and no other records , use that figure as your purchase cost for second half share.

            Comment


              #7
              Originally posted by Gordon999 View Post
              Since there is record of buying half share in 1999 and later buying out the other half share from ex-partner , the third calculation should be used
              That calculation adds the costs associated with the sale into the gain.
              Are inferring some brackets?

              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


                #8
                Jpk,

                Yes, you are right , adding some cost items to the sale price does not make sense. The brackets to show all cost items are deducted from the sale price are missing.

                Comment


                  #9
                  Originally posted by Gordon999 View Post
                  Yes, you are right , adding some cost items to the sale price does not make sense. The brackets to show all cost items are deducted from the sale price are missing.
                  Thank god for that!

                  Anytime I don't agree with you about tax, I know I'm wrong!

                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment

                  Latest Activity

                  Collapse

                  • Reply to Expenses off-set against income tax
                    by jpkeates
                    If the maintenance, insurance, certificates and other stuff is costing more than £4.5k per annum you should probably sell the property.
                    That mortgage is ludicrous for a BTL, unless the value of the property and the market rent are completely out of whack or it's not interest only.
                    29-07-2021, 09:07 AM
                  • Expenses off-set against income tax
                    by xenoid
                    Hi All, I have a question that might have been asked but could find it here.. I am an overseas landlord with only one buy-to let property in the UK. My monthly expenses are more than the rental income so on an annual basis I make a loss. I understand that these expenses can be claimed against tax and...
                    27-07-2021, 12:54 PM
                  • Reply to Expenses off-set against income tax
                    by xenoid
                    monthly rent 1250 ... buy-to let mortgage 873.12 - certificates (elec, gas, PAT, Fire and risk, EPC), maintenance and repairs, council landlord licence costs, service charges, landlord insurance.... all of these quickly erode the rental income.. mortgage is high since is an overseas Buy to let mortgage......
                    29-07-2021, 08:24 AM
                  • Reply to SPV and Leases
                    by jpkeates
                    There isn't really a black and white answer to the question, which I think if because there's a shed load of information missing.

                    If your husband is retiring from being a director of a company, there's no need for anything else to happen - so I suspect that he wants to exit an existing...
                    29-07-2021, 08:18 AM
                  • SPV and Leases
                    by Thurrock1
                    My husband is one of three directors of a limited property development company that has converted a house to 3 flats. The flats are currently rented. Please can someone tell me if, in order to get leases on the flats, we have to at the same time put them into an SPV. To put them into an SPV will...
                    28-07-2021, 20:38 PM
                  • Reply to Expenses off-set against income tax
                    by jpkeates
                    I can easily imagine that a couple of costly repairs might knock a property into a short term loss, but a rental property let out at a rent that doesn't cover the basic costs of operating it long term sounds very odd indeed.

                    How on earth can that happen?...
                    29-07-2021, 08:13 AM
                  • Reply to Expenses off-set against income tax
                    by Neelix
                    How many years have you been running at a loss?
                    29-07-2021, 07:16 AM
                  • Reply to Expenses off-set against income tax
                    by AndrewDod
                    Sounds like a great investment. HMRC will definitely be exploring those expenses in due course....
                    28-07-2021, 20:45 PM
                  • Reply to Expenses off-set against income tax
                    by theartfullodger
                    Why run a business at a loss ?
                    28-07-2021, 16:34 PM
                  • Reply to Expenses off-set against income tax
                    by xenoid
                    thank you for answer the first two parts of my question. There was no need to buy a book on tax after all.

                    as for your response below.. no, i submit tax on an annual basis. rent is paid in UK bank account. All expenses are listed in tax submission. all legal and above water. ...
                    28-07-2021, 15:50 PM
                  Working...
                  X