CGT on my flat that I have lived in?

[bob@informalsolution]

Purchased in July 1988 for £45,000, made up of £4000 cash deposit and £41,000 mortgage.
Lived in the premises until January 1994, (5 and a half years) when new job required me to be within a ‘call out’ distance from base – too far to travel, so moved.
Soon after the purchase, the bottom fell out of the property market and the value dropped to just £25,000. Rather than sell the flat and incur a £16,000 debt, I decided to rent a flat near the new job and rent my own flat out via agents.
This was done with the permission of the mortgage lender and although the rent didnÂ’t cover the overall costs (mortgage, endowment, ground rent and maintenance), it was the only sensible alternative.
I then had to complete the dreaded tax return and fortunately the bills were either low or they paid me as I was not making a profit! The fact that I didnÂ’t rent it out as a business and with the intention to make money, is something IÂ’ve always had a problem fully understanding. I did it to avoid incurring a huge debt and in the hope that in time it would return to the price I paid originally (it took 13 years!)
The price then suddenly took off and after a further six months, the price had risen to £64,950. Fearful of the still uncertain property market, and still blanching from 13 years of overpaying for it, I was ready to sell and get rid of what had become a millstone round my neck.
The trouble now, is that I have ‘made’ £19,050. But that doesn’t take account of the fact that being an endowment mortgage I still had a mortgage of £41,400 to pay off, together with costs of £2,000. And what about my initial deposit of £4,000? It would appear that I managed eventually to accrue about £17,000 over a period 13 and a half years, during which time I was paying for a property worth considerably less than I paid for it. I know that’s the way it goes, but it doesn’t stop me feeling rather aggrieved that having paid over the odds through circumstances beyond my control, I now have to pay tax on this ‘income’
How do I work out how much Capital Gains Tax I have to pay??

[accountant@uktaxshop]

Bob,

the gross gain is £20k

less some indeaxtion allowance and taper relief.

You also have 5.5+3=8.5 years out of 13.5 years of exmption for having lived in the property.

Plus availablity of lettings relief and your personal CGT allowance of £7700.

After that little lot I think I can say there is going to be little and probably no liability.

However you do need to record this transaction on your tax return. If you need some help to fill it in please let me know.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436