Please Please help with CGT on sale of second home.

[Aroon]

Having done a little research on CGT I now realised that I have been naive over my liabilities under CGT.

I moved in to a property in Jan 1992 and was subsequently given the property on a “deed of gift” In Oct 1993 due to its condition. Property needed renovation and due was unable to raise fund at the time so moved out in Sep 1998 and purchased a smaller property to live in. On gaining equity on the second property I re-mortgaged this property to fund conversion of the first property. The first property was then converted in to 4 self-contained units in 2005 and sold first flat in Feb 2006. My wife wanted to become joint owners of the converted property and I agreed to add her on in April 2006. I sold second flat in Oct 2006 and the last two in Aug 2007. I am trying to work out how much CGT I would be liable for using the following:

An estate agent valued the converted property in July 2002 at £300,000, so I work out the valuation using (House Price Index from the Halifax Group Plc) and make the valuation in Oct 1993 as £176,878. Can anyone help me with the cgt liability please?

Additional info:

Disposal proceeds (non-business) £499,950 Notes:
Minus Allowable Costs £287,992
(a) Cost of acquisition £176,878
(b) Incidental costs of acquisition £500 Solicitor
(c) Enhancement costs £97,000 Conversion + Architects
(d) Costs of establishing or defending title £2,409 solicitors + Valuers
(e) Incidental disposal costs £11,205 Estate Agent's + solicitors
Equals Gain before indexation £211,958
Minus Indexation allowance on a, b, c and d only
(for periods to April 1998 only)
£26,001 0.147 x (a) Cost of acquisition
Equals Chargeable gain £185,957

Tapper Relife 70%, 65% & 60% £130,170 1998-2006 + Bonus year
Annual Exemption


Financial Year 2005-2006 F3

Disposal proceeds (non-business) £142,950 Notes:
Minus Allowable Costs £287,992
(a) Cost of acquisition £176,878
(b) Incidental costs of acquisition £500 solicitors
(c) Enhancement costs £97,000 Conversion + Architects
(d) Costs of establishing or defending title £2,409 solicitors + Valuers
(e) Incidental disposal costs £11,205 Estate Agent's + solicitors
Equals Gain before indexation -£145,042
Minus Indexation allowance on a, b, c and d only
(for periods to April 1998 only)
£26,001 0.147 x (a) Cost of acquisition
Equals Chargeable gain -£171,043

Tapper Relife 70% (inc bonus year) -£119,730 1998-2006 + Bonus year
Annual Exemption £8,500



Financial Year 2006-2007 F1

Disposal proceeds (non-business) £123,000 Notes:
Minus Allowable Costs £287,992
(a) Cost of acquisition £176,878
(b) Incidental costs of acquisition £500 solicitors
(c) Enhancement costs £97,000 Conversion + Architects
(d) Costs of establishing or defending title £2,409 solictors + Valuers
(e) Incidental disposal costs £11,205 Estate Agent's + solicitors
Equals Gain before indexation -£164,992
Minus Indexation allowance on a, b, c and d only
(for periods to April 1998 only)
£26,001 0.147 x (a) Cost of acquisition
Equals Chargeable gain -£190,993

Tapper Relife 65% (inc bonus year) -£124,145 1998-2007 + Bonus year
Annual Exemption £8,800 X2





Financial Year 2007-2008 F2 & F4

Disposal proceeds (non-business) £234,000 Notes:
Minus Allowable Costs £287,992
(a) Cost of acquisition £176,878
(b) Incidental costs of acquisition £500 solicitors
(c) Enhancement costs £97,000 Conversion + Architects
(d) Costs of establishing or defending title £2,409 solicitors + Valuers
(e) Incidental disposal costs £11,205 Estate Agent's + solicitors
Equals Gain before indexation -£53,992
Minus Indexation allowance on a, b, c and d only
(for periods to April 1998 only)
£26,001 0.147 x (a) Cost of acquisition
Equals Chargeable gain -£79,993

Tapper Relife 60% (inc bonus year) -£47,996 1998-2008 + Bonus year
Annual Exemption £9,200 x2

[maths]

Not exactly a short succinct query.

Why not post another much simplified query?

[al_eebee]

1) Indexation will be on A & B only

No indexation on C as that was in 2005 so post indexation. Possibly on defending title, depending whether that cost was incurred before or after 17/3/98, but not at the rate of 0.147 unless it was incurred 10/93.

2) the value the agent gave you was for the converted flats and you seem to have indexed that back with the Halifax HPI. What you need to know is the value in 1993 when you acquired it by gift and in its dilapidated state.

3) who was the gift from? Presumably they will have submitted CGT calculations in 1993 which should give you a base cost without having to worry about indexing back.

4) Were the flats all equal size? Probably not based on proceeds for each. You should appotion the costs in each case on the basis of

Cost x Proceeds/Proceeds + value of remainder

5) there may be some PPR relief to come - try looking at
http://www.hmrc.gov.uk/manuals/cg4manual/cg65265.htm et seq

[Aroon]

Thanks both.

I am trying to work out my Cost of acquisition correctly. I'm unaware of the valuation in 1993 and don't know how to determin the valuation. My uncle gifted me the property and although he is alive today he is also unaware of it's 1993 value. The estate agent valuation is prior to conversion of flats.

My thinking is that for 2005/6 I made a loss, I c/f the loss to 2006/7 and have made a gain in 2007/8. I allow for
(a)Cost of acquisition £176,878,
b) Incidental costs of acquisition £500 (solicitors),
(c) Enhancement costs £97,000 (Conversion + Architects),
(d) Costs of establishing or defending title £2,409 (Solicitors + Valuers), in 2005/6 only.

I appotion Incidental disposal costs and re-allocate in the financial year I incured the cost. so for 2005/6 = £2,716, 2006/7 = £2,530 & 2007/8 = £6,094.

and not repeat them in 2006/7 & 2007/8 with the exception of Incidental disposal costs.

This means that there are no indexation or Tapper Relife in 2005/6 & 2006/7 instead apply only Tapper Relife at 60% in 2007/8.

Please advise if I am on the wrong path.

Thanks

[al_eebee]

Sorry I see now you say the caluation was in 2002.

Your uncle should have returned the disposal by gift to you, which should give you the value used.

You have included solicitors costs for acquisition. Can they advise re values?

As before you need to apportion costs between the flats on the basis

Cost x A/A+B

where A is the proceeds and B the value of the remaining flats - and presumably freehold that you still retain?

I do not think you will have made a loss in 05/06 on that basis

I think if you copy the following you should be able to split it into columns that work by delimiting on the :

Date : Costs : F1 : F2 : F3 : F4
Oct-93 : 177,378 : : : :
Jun-05 : 97,000 : : : :
: 2,409 : : : :
Feb-06 : : : : 142,950
Oct-06 : :123,000
Aug-07 : : :117,000 : :117,000
: 276,787 :123,000 : 117,000 : 142,950 :117,000
Sale costs:(11,205):(2,757):(2,622):(3,204) :(2,622)
Index
0.1470 : 26,075 : : : :
Total purchase costs: (302,862):(74,512) :(70,877):(86,597):(70,877)
: : 45,731:43,501:53,149:43,501

This is VERY rough & ready by way of example and assumes NO change in value of the flats between Feb 06 and Aug 07.

There is no split between you & yoyur wife and any PPR relief that might be due is ignored as well

In no way am I holding this out as the correct answer, just an indication of how you might apportion costs to arrive at the individual gains