Caught out by changes to Capital Gains Tax

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    Caught out by changes to Capital Gains Tax

    I appreciate 'ignorance' is no excuse, however there are some mitigating factors, i.e. due to illness etc.

    1. Previous family home rented out - terrible tenants - left owing rent, bad repairs etc. [usual story for some] subsequently property not let for 2 years for a number of reasons while trying to sell with three buyers pulling out.
    2. Paid +50% council tax one year and then +100% council tax second year.
    3. Told HMRC no longer renting out, no longer need to do SA returns - so no longer kept abreast on letting situation. Missed the changes to CGT. There's been a lot going on [same for lots of people I guess during Covid]
    4. Worked out in 2019 and then again in early 2020 amount due on CGT was nil in readiness for sale. Luckily kept the print-outs.
    5. House sale delayed until end January 2021. Solicitor/estate agent never flagged changes to CGT which had they done so, I could have addressed.
    6. Discovered now I should have let HMRC know of disposal within 30 days!
    7. Discovered now that Lettings Relief has been abolished so I do actually OWE CGT.

    I am very concerned as property bought before 01.04.82 so I can claim Private Residence Relief as it was my principal residence for over ten years but the Lettings relief has been abolished and so although the CGT is still likely to be a lower amount [property in the North] given the improvements were made so long ago, I have some questions:

    1. Do I have to provide receipts for building works [property adapted for ageing parents - i.e. ground floor extension/bathroom] etc. given improvements made in early eighties? Paperwork left in family home but went missing some years ago probably went on the fireback as parent developed dementia.
    2. Has the calculation changed for Private Residence Relief? I am aware the Lettings Relief has been abolished. Previously when I did the CGT calculation under the old rules I didn't owe anything and now the PPR figure seems to be calculated differently to my detriment.
    3. Also, property originally bought as joint tenants - both parents/myself - when first parent died, house belonged to myself and surviving parent and subsequently I became the sole owner. The online CGT calculator doesn't accommodate this split so I completed as though I was the sole owner as was the case at time of sale.
    4. Can the losses in terms of double council tax and other expenses be added to the deductions calculation?


    If anyone can assist I would be grateful as this is causing me a great deal of stress, the changes do seem unfair on single property landlords. Had I been sighted I could have signed over half the property to my spouse ahead of the sale and then we would have been able to avail ourselves of twice the £12,500 allowance and I wouldn't owe any CGT.


    Many thanks

    Reluctant [never again!] Landlord

    PS Obviously I will pay what's due under the new regime, however, I am very concerned that HMRC will slam me with additional charges for late filing/payment - has anyone any experience of where HMRC has treated tax payers leniently due to mitigating circumstances. I'll be paying them what I owe albeit later than they would want?
    Last edited by reluctantlandlord1976; 06-12-2021, 14:15 PM. Reason: Added a PS to the post.

    #2
    Consult an accountant

    Comment


      #3
      Originally posted by Neelix View Post
      Consult an accountant
      I second that. Just signed in to say that exact thing.

      Comment


        #4
        Thanks Neelix and g373 to take the time to respond, however, won't the accountant just say it's too late given I've already missed the deadline? I've looked at all permutations of the figures and I no longer qualify for lettings relief, which previously would have made me liable for £0 [the figures are low as property in the North] so not sure of the benefit here, won't I be just adding to my outgoings?

        Comment


          #5
          1 - You don't have to provide receipts unless challenged on the amounts by HMRC. They're usually not unreasonable about long ago costs, but they're more likely to push back if the claim looks odd. 1980's costs are unlikely to be too significant. But a professional would give proper advice.

          2 - The change to PRR is that the previous additional 18 months you could add to the period of residence is now 9 months. As you say, letting relief has gone completely for most landlords.

          3 - You have to calculate the liabilities individually, and this is where you probably need professional help. As far as I know, the CGT liability of your parents fell away when they died (the gain is transformed into their estate, so the tax regime changes) - so your liability may not be as great as you think. But I'm really not confident about how it works in practice, sorry.

          4 - Those are operational expenses, but you seem to have confirmed to HMRC that your business was dormant, so you can't reclaim them - they could have gone on the tax returns you agreed not to complete - but unless you have other income, the allowances would have been a bit useless.

          HMRC can levy fines and penalties, but they're not vindictive (in my experience).
          An accountant will help sort that out, because HMRC is usually forgiving of people who come forward voluntarily and want to pay the tax they owe.

          Please don't stress, though, it's something that's bread and butter to most accountants, and it's easy to sort out.
          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
            Thanks JP Keates for the comprehensive reply. I will try not to stress but it's not always that easy. I did let HMRC know the property wasn't being rented out so that took me out of the SA system - hence I didn't really pay attention to the lettings world and the sweeping changes passed me by as I was expecting to sell in 2019 which is when I calculated I had no liability under the old regime. I'll have a search now for an accountant. Thanks again

            Comment


              #7
              You both need to inform HMRC within 30 days, declare all ££££ numbers then pay the CGT within 30 days. Strongly suggest a bot of speed to hopefully reduce fines & penalties.

              You're in the same position as someone speeding who tells us he didn't notice the 30mph sign. No defence. (yes, been fined for speeding..)
              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


                #8
                Thanks 'theartfullodger' I did open my post by acknowledging ignorance was no excuse....and I'm now obviously aware of the need to report within 30 days rather than the previous 22 months. I looked again at the letter from the solicitor post sale and they invited me to make a will but no mention of change in legislation which I think would have been helpful to lots of people especially ones with dormant properties. Was on here to see if anyone had found themselves in a similar situation and could offer advice. BTW never had a speeding or parking fine! Fine, upstanding citizen clobbered by the system......was a good landlord and had awful tenants....whinge over.

                Comment


                  #9
                  How long exactly was this letted or not your only and primary residence -- it hardly seems likely CGT would be covered by 2 allowances since 1982.

                  Almost none of the things you mention are valid deductions (like council tax). I suspect you owe many tens of thousands in tax and more in fines.

                  Comment


                    #10
                    Thanks AndrewDod for your response. The property was up North so the figures are low in any case. Bought prior to 01.04.82 - sold 2021. Spent lots on renovations/improvements so 'gain' was none under previous regime what with PRR and lettings relief and marginal for this new regime. I have used the CGT calculator and what's due is low but you're right I'm concerned about penalties as previously able to report up to 22 months after sale and now 1 month. "Tens of thousands....." is quite an alarming statement. Ten years + my principal residence. Parents lived in it all their lives until death. Property rented out when parent moved into care home and then the property was let out. I'm not sure what you mean by 2 allowances since 1982?

                    Comment


                      #11
                      It seems to me your capital gains tax problem is rather complex and requires some help from a tax accountant. But before contacting the tax accountant , you need to collect all of the information.

                      (a) Your "total capital gain" = your property sale proceeds ( Jan 2021) minus your 3 part "entry cost".

                      (b) Your 3 part "entry cost" for the property = .1/3rd of cost ( at April 1982 ) + 1/3 rd valuation ( first probate ) + 1/3 rd Valuation( second probate ) plus improvement costs. .

                      (c) The "April 1982 valuation" should be provided by a local surveyor or local estate agent.

                      (d) The "total capital gain" is apportioned between the "rental period" and the "self-use period" ( your stay plus parents stay )

                      Comment


                        #12
                        When you lived there did you OWN it (ot did your parents own it). Ownership by your parents and residence by them is irrelevant to your CGT calculation. Sounds as if it was rented out all the time that you owned it.

                        Highly unlikely that over that timescale the CGT would be negligible "up north" for any sort of residential home in 99% of areas.

                        Money spent on refurbishment while it was the home (of parents or yourselves) does not count either. Sound from your OP that you are including that too......

                        Expect an extensive tax audit.

                        Comment


                          #13
                          Let us know the exact timescale and money involved year by year - I am sure some kind person (or even myself) with do a calculation for you so that you can assess the risks involved

                          Comment


                            #14
                            We were all joint owners. Bought it with parents. I lived there for 10 years before buying own home. I became sole owner upon their deaths. Rented out since 2007-2019. Empty last two year as trying to sell. Hence I was off the landlord radar. I am now extremely worried by your statement that refurbishment carried out when we were living there doesn't count! This is getting worse. I feel quite sick now.

                            Comment


                              #15
                              You are really short on detail:

                              Date (year & month) bought in joint names ______ (what % was yours then)
                              Date it converted to your sole name ______ (presumable date of death of parent 2?)
                              Declared vale at probate _________
                              Capital expenses between date of probate 2 and now _____________
                              Final sale value/date _______
                              Expenses relating to sale itself (estate agent, lawyer)

                              Years you actually lived there as your ONLY home in the above _______________

                              Comment

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