Capital Gains Questions?

[deshg]

Hey everyone, i have a few questions about capital gains that i would really appreciate someone shedding some light on! I have read IR 283 from the inland revenue website as suggested on another post, which helped me out a lot, but (as usual!) i have a few follow up questions if you would be so kind...
(Q's 1-3 are the most important ones)...

1) Are you only allowed one lodger within your primary residence to not pay any CGT?

2) What is the tax definition of a lodger (can they pay a fixed amount each week etc)?

3) Whats the situation with absenses due to rental? ie If i have a property that is my primary residence for a year after i buy it then i rent it out for 3 months while i sell it am i then liable for cgt because i rented it out and lived elsewhere for 3 months?

4)Am i right in thinking that, because of lettings relief, as long as your capital gain is less than £80 000, it's your primary residence and you're only letting out up to 50% of it then you don't pay any capital gain as your relief wipes it out?

Thankyou so much for this in advance, this is always so confusing!

Thanks,

Dave

[Tax Accountant]

1) Are you only allowed one lodger within your primary residence to not pay any CGT?

REPLY: Not that I am aware of. But I have not checked this definitively.


2) What is the tax definition of a lodger (can they pay a fixed amount each week etc)?

REPLY: There is no special definition of a lodger for tax purposes as far as I am aware. Lodgers normally do pay a fix amount each week. But again I have not checked this definitively.


3) Whats the situation with absenses due to rental? ie If i have a property that is my primary residence for a year after i buy it then i rent it out for 3 months while i sell it am i then liable for cgt because i rented it out and lived elsewhere for 3 months?

REPLY: If you have used a property as your only or main residence 'AT ANYTIME IN YOUR OWNERSHIP', you are allowed the final 3 years (inclusive of any period of residence within the final 3 years) free of CGT. This is to allow you time to sell the property in a bad market when it can take a long time to sell. It doesn't matter whether or not you have let the property during some or all of the final 3 years.

Additionally, if you have taken longer than 3 years to sell after moving out, any excess period could still be covered by other reliefs and allowances such as lettings relief, taper relief and annual exemption. Therefore, you could afford to keep letting for much longer than the 3 years after moving out.


4) Am i right in thinking that, because of lettings relief, as long as your capital gain is less than £80 000, it's your primary residence and you're only letting out up to 50% of it then you don't pay any capital gain as your relief wipes it out?

[I]REPLY: There is no automatic right to £80,000 lettings relief. It is actually UPTO a maximum of £40,000 for each joint owner. For two joint owners the lettings relief is UPTO a maximum of £80,000. However, depending on your particular circumstances, it could be a lot less than the £40,000 per each joint-owner.

Also there is no such thing as the 50% you mention. I think you are confusing the way lettings relief is calculated with the 50%. Lettings relief can be as much as the PPR relief itself and therefore you are assuming that 50% is covered by PPR relief and 50% is covered by lettings relief. This is not always the case.

If the property is owned by one person only and suppose 5 years are chargeable and 5 years are covered by PPR relief. If the gain is £200,000, £100,000 of this is covered by PPR relief but the other £100,000 will not be automatically covered by lettings relief.

Lettings relief for EACH joint-owner is the LOWER OF (a) £40,000 (b) PPR relief and (c) chargeable gain arising by reason of letting. Even then, doubts have been raised in some quarters regarding the calculation of the chargeable gain arising by reason of letting in respect of the letting period in the final 3 years of ownership. For example, if all your letting is in the final 3 years which is automatically exempted, could you say that any of the chargeable gain is by reason of letting?[/I]

Ramnik

[deshg]

Thank you!

Thank you very very much for your comprehensive reply, that makes a lot more sense, it always amazes me how complicated absolutely everything tax wise turns out to be! I know this is a very open ended question but what do you think is a good way to go about finding a reliable but reasonably priced accountant to advise me on the specifics with regard to lodgers/tenants and cgt on a small scale (given i only have one property owned privately by me). The reason i ask is i'm always paranoid about this sort of thing, whilst i don't need much doing (just a personal yearly tax return) i need to make sure the advice is 100% sound otherwise i'm scared i'll do it in the wrong way and end up with a huge cgt bill! I'm in Manchester by the way.

Again thanks very much for your reply,

Dave

[Tax Accountant]

Thank you very very much for your comprehensive reply, that makes a lot more sense, it always amazes me how complicated absolutely everything tax wise turns out to be! I know this is a very open ended question but what do you think is a good way to go about finding a reliable but reasonably priced accountant to advise me on the specifics with regard to lodgers/tenants and cgt on a small scale (given i only have one property owned privately by me). The reason i ask is i'm always paranoid about this sort of thing, whilst i don't need much doing (just a personal yearly tax return) i need to make sure the advice is 100% sound otherwise i'm scared i'll do it in the wrong way and end up with a huge cgt bill! I'm in Manchester by the way.

Again thanks very much for your reply,

Dave

Believe me, anyone who raises these questions on any such forums and wanting professional services are not really serious about paying professional fees. So it is best for me to keep away from it altogether.

Ramnik