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Where Taxpayers and Advisers Meet

CGT on splitting home

triplej
Posts:6
Joined:Fri Jan 05, 2018 12:41 am
CGT on splitting home

Postby triplej » Fri Jan 05, 2018 12:49 am

I own a large flat that I have lived in since I bought it.
Say I paid £100k for the flat.
On the assumption I got the correct permissions to split that flat into two smaller flats and wanted to sell one of them, would I need to pay capital gains tax? and if so how much? if I were able to sell one flat for say £200k?
Thanks in advance to any responders :)

alig31
Posts:23
Joined:Wed Nov 10, 2010 11:29 am

Re: CGT on splitting home

Postby alig31 » Fri Jan 05, 2018 2:07 am

This should answer your question...https://www.gov.uk/tax-sell-property

but in short YES! Reduced by costs to convert into 2 flats also minus the allowance and taxed at.....

If you’re a higher or additional rate taxpayer you’ll pay:

28% on your gains from residential property

or
If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income...but see https://www.gov.uk/capital-gains-tax/rates for further details

Regards
Alig

triplej
Posts:6
Joined:Fri Jan 05, 2018 12:41 am

Re: CGT on splitting home

Postby triplej » Sun Jan 14, 2018 10:31 pm

Hey Alig,
Thanks for your response. I've taken a look at the link, however my hypothetical scenario seems fairly specific so I couldn't find an answer to my situation.

Just to recap:
I bought a single flat for £100k.
I split the flat into 2 flats - Flat A and Flat B.
It costs me £50k to convert into 2 flats.
I sell flat B for £200k.
Flat A remains my home and sole property.
At the time of selling Flat B, the pre conversion value of the combined flats would have been £300k.

I would need to pay capital gains for selling Flat B.
This would be worked out roughly as:
£200k (Flat B sale price)
minus £25k (50% of the conversion costs)
minus £150k (50% of the combined pre conversion value)
Therefore I would need to pay CGT on £25k.

As long as flat A remained my home, I could sell it for any amount in the future and I wouldn't need to pay tax on it?

Does this sound about right? Your continued support is much appreciated.
Can I also ask where you are getting your knowledge from... i.e are you an accountant?
Kind regards,
J

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Re: CGT on splitting home

Postby wamstax » Sun Jan 14, 2018 10:58 pm

You need to review the following link as well
Http://www.gov.uk/HMRC-internal-manuals ... al/cg65200 and various other succeeding guidance. Clearly if you are seeking tax planning words of comfort you would be best to engage with a professional on a one to one fee basis as you cannot guarantee that all relevant factors can be brought out in a public forum
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

triplej
Posts:6
Joined:Fri Jan 05, 2018 12:41 am

Re: CGT on splitting home

Postby triplej » Mon Jan 15, 2018 1:21 am

Thanks wamstax,
That link doesn't appear to resolve.
I would definitely seek professional advise before proceeding with any building work, but I was hoping to find someone on here that might know if I was on the right lines regarding how to calculate the amount of CGT for the above scenario.
All the best,
J

wamstax
Posts:2019
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Re: CGT on splitting home

Postby wamstax » Mon Jan 15, 2018 1:39 am

Ok try this one. I hoped that you would have used the pointer to the complications that will and may arise in whatever you do

https://www.gov.uk/hmrc-internal-manual ... al/cg65265


Will leave it there as you will have to read a few links in addition.

Can I just add that the guidance in HMRCs manuals IS NOT LAW and things should only be done in accordance with the law but at least you have an idea as to how HMRC will deal with these things
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

triplej
Posts:6
Joined:Fri Jan 05, 2018 12:41 am

Re: CGT on splitting home

Postby triplej » Mon Jan 15, 2018 5:49 am

Perfect thanks wamstax,
That link is working now and seems very relevant to my potential situation.
Especially this one.
https://www.gov.uk/hmrc-internal-manual ... al/cg65270
It appears that both flats would be liable for capital gains tax :(
Anyway I will investigate further. Thanks for the link :)

Kind regards,
J

triplej
Posts:6
Joined:Fri Jan 05, 2018 12:41 am

Re: CGT on splitting home

Postby triplej » Tue Jan 16, 2018 12:36 pm

Hello again :)
I have a couple of of follow up questions with regard to the following link.
https://www.gov.uk/hmrc-internal-manual ... al/cg65271

It provides a calculation for CGT to be paid if you split your home into 2 flats and sell the first flat as:

Gain = (Value of both flats at point of sale) - (unconverted value of flats at point of sale) - (conversion costs)
CGT = (Flat sale price) * (Gain) / (Value of both flats at point of sale);

This makes sense to me., however it states:
When the flat retained as the only or main residence is finally sold a further computation will be required as part of any gain arising on that flat may also be attributable to the conversion.
But it doesn't state whether the figures would be adjusted to the new point of sale.

Therefore my questions:
1. Would the figures used to calculate the CGT be adjusted to the new point of sale of the second flat?... if not inflation would make the CGT spiral and it would be crazy not to sell both at the same time.
2. Who decides the hypothetical value of the unconverted flats?... as this figure greatly impacts the CGT.

Hope that makes sense, and thanks to any responders.
J

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: CGT on splitting home

Postby bd6759 » Tue Jan 16, 2018 6:06 pm

Private Residence relief is not due where expenditure has been incurred to realise a gain. Splitting into two flats is such expenditure. The computation needs to take that into account.

Values are done by professional valuers, and, if agreement isn't reached, it is determined by the Lands Tribunal.

triplej
Posts:6
Joined:Fri Jan 05, 2018 12:41 am

Re: CGT on splitting home

Postby triplej » Wed Jan 17, 2018 8:34 pm

Thanks bd6759 for your response,

That answers the who decides the value question.
However i'm confused by the other part.
- If I sold the second flat 10 years after the first, in say 2028... Would the (value of both flats), used in the CGT calculation, be increased to the value of both flats in 2028?
If not, it would only make sense to sell both flats at once in 2018.

All the best,
J


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