CGT and Rental income

[Very complicated]

X and Y owned 50% (jointly and severally) of a property in a shared ownership scheme with a housing association. The property was bought in 1988 with endowment mortgages, with X and Y each having an endowment. X left the property in 1990. Y ran up arrears on the property (rent and mortgage) until X took over the property from Y via the courts paying off the arrears (approx £8000), and renting it out in 1994 and taking out a repayment mortgage to cover Y's endowment share.The property was in negative equity. Very little if any profit was made until 2001 and then about £200 a month. No tax has been paid or declared. X has just spent £5000 on making it saleable - the kitchen had been wrecked etc.The property is about to be sold, CGT needs paying etc.. but about the tax - is this going to be horrendous - is CGT and penalties going to eat up all the 'profit'? Can the payoff of the arrears be claimed as an expense? Can any part of the refurbishment be claimed?

[Nigel Lord]

X will have a potential tax liability computed as follows:

Proceeds net of costs of disposal (legal and agency fees etc.)

Less:

Original acquisition cost of 50% share in 1988

Indexation Allowance to 5 April 1998

Cost of acquiring 2nd 50% share in 1994 (not including endowment)

Indexation Allowance on all the above from date expense incurred to 5 April 1998

Improvement expenditure (providing no income tax relief claimed)

Indexation on improvements

Principal Private Residence (PPR) Relief (approximately 5/15 - period of residence plus last 36 months)

Residential Lettings Relief (to £40,000)

Taper Relief (20%)

Capital losses arising in same tax year

Unused Annual Exemptions(s) (£7,900)

Capital losses b/fwd

If you require a bespoke computation please refer to me.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk