There are a number of allowable deductions and relief’s that may be available in calculating the chargeable gain on the disposal of a dwelling.
In addition to the actual purchase price (base cost) of the property, the following deductions can be made in the capital gains tax (CGT) computation:
- Legal/solicitors’ fees on acquisition/disposal
- Estate agents’ fees
- Valuation fees
- Stamp duty land tax
- Capital enhancement expenditure
On the assumption that the annual exemption has not been utilised for the relevant year, this can be deducted from chargeable gains for the same year in arriving at the gain subject to CGT (this exemption currently stands at £11,000).
Principal Private Residence (PPR) relief
PPR relief is available if the property in question has been occupied as the taxpayers’ only/main residence, i.e. it has been occupied as their ‘home’. Any gain accruing during a period of occupation is exempt from CGT. In addition, if the property has been occupied as a home at any stage, the gain accruing in the last 18 months is also exempt from CGT (36 months for sales prior to 6 April 2014).
HMRC may challenge a claim for PPR relief, if it is felt that the dwelling has not been occupied as a home. In looking at the facts, HMRC will seek to identify the quality of the occupation as opposed to relying solely upon quantity. PPR relief may also be denied where occupation of a dwelling is merely to gain a tax advantage.
There are also a number of instances where a taxpayer can claim PPR relief under the deemed occupation rules. For example, where an individual takes up full time employment abroad and returns at a later date, the intervening period can qualify for full PPR relief.
If PPR relief is available, but does not fully exempt the chargeable gain, lettings relief may be available. The dwelling must have been occupied as an individuals’ only/main home at some stage for this to apply. Lettings relief is restricted to the lower of; 1) the capital gain accruing during the let period; 2) the amount of PPR relief claimed and; 3) £40,000.
Unutilised early years’ and current years capital losses may also be available to reduce the gain chargeable to tax.
Article Courtesy of: Ward Williams