CGT on house owned for 11 years, lived in for last 12 months

[kevtotty]

Hi

This Q is on behalf of my mother-in-law (so please bear with me!)

She and her partner (she is not married) jointly own a house for the last 11 years and have lived in it as their only home for the last 12 months.

Purchased for £25k, value now £125k, spent £15k renovating it.

If they purchase new house before selling current house, will she/they be liable for CGT when they do sell current ?

Many thanks in advance

Kev

[Instinctive]

3 years exempt out of total ownership period 11 years. Therefore Private residence relief will be 3/11 x gains of £85,000 = £23,000.

You have not stated what the house was used for in the first 10 years. If let in the earlier years, lettings relief could reduce the gains by a further £23,000.

Taper relief could be upto 40% of chargeable gains after private residence relief and any lettings relief. This could be as much as £25,000 if letting relief doesn't apply or £15,000 if letting relief applies.

Remaining gains will be reduced by annual exemptions of 2 x £8,800 = £17,600.

Any balance will be divided between the two and added to their other taxable income and gains in the same tax year. Gains will be taxed at 20% or 40% according to how much falls into basic rate band and higher rate band.

It doesn't matter whether they sell before or after buying the new one.

Ramnik

[King_Maker]

Some further comments :

1. There should be some Indexation - about £3400

2. Taper Relief would be 35% (8 years + Bonus Year)for a sale prior to 5 April 2007.

2. Some of the CGT could be taxed at 10%,if appropriate.

[kevtotty]

Thanks for the replies.

Just one more question, how does the taxman find out regarding the financial gain in the first place?