CGT

[jayhay]

I am assisting an elderly couple who are having some difficulty in calculating their CGT liability on the sale of their property. As joint owners they are aware of the yearly CGT allowances of £11,700 each, but have had conflicting advice on other minor CGT allowances.

18 months ago, as a retired couple, they downsized by vacating a rented family home and moved into a small flat they had purchased as a buy to let investment in 1990 for £51,000. Until moving in 18 months ago they had never lived in this property. Its present value is £175,000, so it is burdened with a significant capital gains liability.

Due to the onset of recent mobility problems they can no longer live in this top floor flat, but have the opportunity to sell and then purchase a ground floor flat in the same building. The issue is therefore one of financing the gap between the sale of the present flat (after CGT is paid) and the cost of the ground floor flat. Both flats are of similar market value.

It appears that they will receive minor CGT allowances for the 18 months they have lived in the flat and also a letting allowance. Guidance on how to calculate these extra allowances would be greatly appreciated. Their modest income will place them in the 18% CGT bracket.

[AGoodman]

I'll have a go.

Their gain is approx. £124k (minus costs of acquisition/sale and any capital improvements carried out over the period).

Regular PPR gives relief of 1.5/28 [years] * 124,000 = £6,642.

Lettings relief will be capped at the amount of regular relief so total gain post PPR relief and lettings relief will be £110,700.

Each will benefit from the CGT personal exemption so dividing the total gain by two and deducting the exemption of £11,700, leaves a gain of £43,658 each.

Best case (if their income is under their income tax personal allowance) each will pay tax of £35,500 * 18% + £8,158 * 28% = £6,209 + £2,284 = £8,500 (or thereabouts). Any income in excess of the personal allowance would push more gain into the higher rate band.

Total tax between them of £17,000.