Notifying cgt liability to HMRC

[Miffy]

If we sell a rental property (or sell our PPR and move into a rental property for that matter) how do we notify HMRC that we have a CGT liability?

Does the solicitor/conveyancer provide the forms or do we get sent a form by HMRC or do we need to approach HMRC directly?

Please be gentle with me if this seems thick, but reading some of these other threads just got me wondering who sends out the paperwork for all this stuff.

[TaxationPete]

If you sell a property you have loved in there a various relief's available that may cause you CGT liability to fall to zero. If you sell arental property that you have not lived in then there is relieg available. You do not make it clear what you are actually doing so please explain. If you provide dates, at least MM/YYYY, of aqcuisition and disposal with costs and associates legal fees and dates of when the property was rented out then I will run the numbers for you. Regards Peter

[Miffy]

Well, let's say we decide to sell the following property.

Purchase price 52k in oct 1999. Current sale price estimate 125k. Rented out the whole time. Deed of variance used to allocate 99.9% proceeds to wife (for tax reasons, obviously) but don't know if that has a bearing on cgt.

If you could run the figures that would be great, but I was actually wondering how the HMRC is informed of the cgt liability (our responsibility or solicitor or whatever).

While we are at it, are there any measures we could take to reduce cgt burden should we sell? I have read that you can live in the property for example but I think you said in another thread that we would have to sell or rent out our old house in order to convince HMRC that it was OK to do this?

[TaxationPete]

Firstly you need to establish the the 'Deed of Variation' qualifies yoor wife as an owner thus the CG allowance. It probably does but a Form 17 within 60 days of deriving a rental income wouls have done the income apportioning for the cost of a stamp.
Here are your number.

Purchase Price 52,000
Indexation 0 52,000
Legal Fees 0
Sale Price 125,000
Enhancements 0
Legal Fees 0
Gross Gain 73,000
PPR Relief 0 73,000
Letting Relief 0 73,000
Taper Relief 25 54,750
CG Allow'ce 2 9,200 54,750
Total CG Bill 7,270 Assumes both on 22% tax

You will need to provide your gross salary each to get closer and what about your legal fees and any capital enhancements.

If you have a gain it is declared via the CG additional pages of your SA form and payable by the 31st Jan following the FY the gain was main in so not until Jan 09

If your wife is not regarded by HMRC as an owner and No CG allowance and you are a 40% tax payer then your bill will be :

Purchase Price 52,000
Indexation 0 52,000
Legal Fees 0
Sale Price 125,000
Enhancements 0
Legal Fees 0
Gross Gain 73,000
PPR Relief 0 73,000
Letting Relief 0 73,000
Taper Relief 25 54,750
CG Allow'ce 1 9,200 54,750
CG Bill 18,220


Regards

Peter

[Miffy]

Thanks for that- its not as bad as I thought, then!

So if we lived in the house for 6 months or so at some point, would we have even less tax to pay?

We were advised that we needed the deed of variance to apportion the income but by the sounds of it, that's not the case?

If its for the tax payer to declare cgt, I wouldn't be at all surprised if many people don't even realise that they have to do this. (Although it seems unlikely that there would be any cgt to speak of on the PPR, with more buy-to-let going on I can see that becoming more of an issue!)

[Miffy]

Having the deed of variance in place, does that mean we would have more tax to pay because I am only entitled to 0.1% of the proceeds of sale? (Therefore can't use all my capital gains allowance?)

Could we transfer the ownership back to 50/50 before selling, in order to prevent this? Or do you work out how many years someone has been entitled to the share of the asset and at what rate to determine their "share?"

[TaxationPete]

NO the 'Deed' may only apportion Rental income this is why I asked you to check with the solicitor. 99.9% is a bit OTT in my book but if your solicitor has done his job then you are both owners and 2 allowances will qualify. Ask your solicitor. Regards Peter

[Tax Accountant]

Deed of variation will apply tyo both the income and the gains.

The way out would be to change the Deed to a 50:50 split before selling if you wish to use both persons CGT exemptions and lower tax rates.

Ramnik

[islandgirl]

If you sell a property you have loved in

TaxationPete - wonderful typo - made me smile anyway

[Miffy]

Deed of variation will apply tyo both the income and the gains.

The way out would be to change the Deed to a 50:50 split before selling if you wish to use both persons CGT exemptions and lower tax rates.

Ramnik

That's broadly what I suspected. So, just to get this clear in my mind, if we change the deed just before selling its OK to apply the new split to ALL the years of gain?

[Tax Accountant]

Transfers between spouses are effectively at original cost.

Therefore, any transfer between spouses will transfer all accumulated gains to the final owner, or the shares in which they own the asset.

It would be desirable to keep as much gap between the transfer and the ultimate sale, although not strictly necessary.

Generally speaking, spouses should not keep transferring shares between themselves from year to year to suit each year's tax position.

But doing once in a while should not normally be challenged.

Ramnik