CGT Advice again..........

[martyn766]

Hi,

If I were to sell a property i never lived and rented out for the whole 5 years I owned it - can I claim CGT relief on the interest paid on the mortgage for that time? I know I can claim relief on fees involved in buying & selling (agent, solicitor, etc), capital improvement costs?

Is there anything else? Service charges, ground rent - doubt these as they have been used for rental income tax relief BUT so were the valuation fees & solicitors fees which I claimed as setup costs in purchasing the house??? Was I wrong to do this?

Many thanks,
Martyn

[jeffrey]

Hi,

If I were to sell a property i never lived and rented out for the whole 5 years I owned it - can I claim CGT relief on the interest paid on the mortgage for that time? I know I can claim relief on fees involved in buying & selling (agent, solicitor, etc), capital improvement costs?

Is there anything else? Service charges, ground rent - doubt these as they have been used for rental income tax relief BUT so were the valuation fees & solicitors fees which I claimed as setup costs in purchasing the house??? Was I wrong to do this?

Many thanks,
Martyn

Well, from a conveyancing viewpoint only, I would expect all acquisition costs to be allowable. Running costs, on the other hand, are surely deductible against income tax liability on income, so probably not against CGT liability- unless accountancy advice otherwise?

[martyn766]

Thanks - Can I declare this my principal reisdence, and move back into that house to get tax relief (for a couple of months for example)??
Or does this have to be the other way round?

[Tax Accountant]

Well, from a conveyancing viewpoint only, I would expect all acquisition costs to be allowable. Running costs, on the other hand, are surely deductible against income tax liability on income, so probably not against CGT liability- unless accountancy advice otherwise?

Sorry, Jeffrey, but acquisition costs are considered as capital costa and thus not allowable as an expense against rental income. The logic is that these costs were incurred in bringing the asset into being and not as a result of using it for the lettings business.

Ramnik

[Tax Accountant]

Thanks - Can I declare this my principal reisdence, and move back into that house to get tax relief (for a couple of months for example)??
Or does this have to be the other way round?

Martyn,

Loan arrangement fees, Loan interest, Service charges, ground rent etc are all expenses of your letting business and thus could not be claimed in the computation of your CGT upon sale.

Only capital expenditure, eg buying costs, selling costs, improvements etc could be claimed in the CGT calculation.

Moving in for a couple of months would normally not be enough to qualify it as being used as your home. Although a set period is not required by law, 12 months would be more like it.

If you use two or more properties as your home, the main residence automatically qualifies for CGT relief. It is only if you wish the secondary residence to benefit for CGT relief instead, that you have to make a nomination in writing to your tax office.

But first you have to be using two or more properties as your residence before you could consider making a nomination.

Ramnik

[martyn766]

Thanks alot for this advice

[Chartered Tax Adviser]

An election for the second property to be treated as your main residence for tax purposes needs to be made within two years of acquiring a new residence. Question is, what is considered acquiring a new residence ?

- It can be purchasing a new property which is used as a residence
- It can be taking on a lease or tenancy for a property to be used as a residence (even if only for 6 months - sometimes a useful planning tool if the two year deadline has passed)
- It can be the end of a tenancy on an existing property which is then used as a residence.
- The HMRC manual also suggests the sale of a residence can also re-start the two year clock

As for the period of occupation, HMRC commented in one case:-

"`It is clear that the Commissioners were alive to the fact that even occasional and short residence in a place can make that a residence; but the question was one of fact and degree for the Commissioners'".

Their manual also gives the theoretic example where a property was nominated for 1 week as a main residence for tax purposes.

Where a property has at some point been one's main residence, the final three years are normally exempt (on a straight line basis) and if the property has been let (residentially or as holiday lets, but not commercial property) you may also qualify for the residential lettings exemption which can be up to £40,000 (strangely per owner so £80,000 for joint ownership).

Make sure your tax affairs are looked after by a Chartered Tax Adviser.

[Tax Accountant]

Thanks alot for this advice

You are welcome.

Ramnik